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How Does HSA Saving Affect 401(k)s?

A new study finds that those who use both health savings accounts and 401(k)s save more — not just in total, but also in the 401(k)s alone.

The study polled more than a million people at 34 large employers for which Alight Solutions provides recordkeeping services for both health and welfare plans and DC plans. It found that on average, those who contribute to both an HSA and a 401(k) save 8.9% in the 401(k) and an additional 2.9% in the HSA. For workers who save only in the 401(k), the average contribution rate is just 6.8%.

This dynamic holds true even when controlling for different demographic factors such as pay. Among workers making between $20,000 and $40,000, those who saved only in the 401(k) had an average deferral rate of 4.8%, while those who saved in both a 401(k) and HSA saved an average of 6.1% in the 401(k) and 3.6% in the HSA. On average, those who saved only in an HSA set aside just 2.5%.

These results mirror the findings of a 2017 report from Fidelity which found that in 2016, average savings rates for employees with both a 401(k) and HSA were often higher (10.6%) than for those saving only in their 401(k) (8.2%).

Just over 60% of workers use both the health care and retirement benefits provided by their employers, the study also found. However, this means that roughly two out of every five are foregoing one of these benefits. In fact, 10% of workers are not enrolled in either an employer-provided health care plan or a 401(k) plan.

Not surprisingly, income levels matter. Alight notes that workers making more than $40,000 are much more likely to elect health care coverage and save in the 401(k) plan, and that those making less than $40,000 were mainly hourly workers. While that can also make a difference in eligibility for benefits, Alight notes that all the workers in this study were eligible for both health care and 401(k) plans.

Among those making at least $40,000, single workers were more likely than married workers to use both benefits. (Alight opines that it’s likely that many married workers opt out of health care coverage because they can be covered by their spouses’ plans.) However, among workers making between $20,000 and $40,000, only 61% of single workers were enrolled in health care coverage, compared to 74% of married workers in this group. Lower-paid single workers were also most likely to choose neither health care nor 401(k) benefits; 22% of these workers chose not to enroll in either plan.

One thing that didn’t seem to matter: gender. After accounting for pay, there is little difference between men and women in the likelihood of enrolling in both health coverage and the 401(k) plan. However, when people select just one benefit, men were more likely to choose health coverage, while women were more likely to choose 401(k) participation.

Health plan participation is lower for those younger than 26 and older than 65 — probably because the former can be covered under a parent’s policy, and the latter would have access to Medicare.

Lower-paid workers are less likely to enroll in an HSA-eligible health plan: 44% of workers making below $60,000 a year were enrolled in an HSA-eligible plan, compared to 53% of those making $60,000 or more.

Younger people are more likely to enroll in an HSA-eligible health care plan: 50% of Millennials are enrolled in an HSA-eligible health care plan, compared to 44% of Gen Xers and 39% of Baby Boomers. Workers who cover other individuals — spouses and/or children — were less likely to enroll in a plan that is eligible for an HSA.

Roughly two-thirds (64%) of employees enrolled in an HSA-eligible health care plan make a contribution to the HSA. While most of these individuals are also saving in the 401(k) plan, about a quarter (27%) are making contributions to the 401(k) only.