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Why HSAs Should be Part of Your Retirement Savings Conversation

Not convinced yet that health savings accounts should be incorporated in your retirement savings conversation with clients? Panelists at a workshop session on the opening day of the 2018 NAPA 401(k) Summit sought to dispel any reluctance about doing so.

Serving as the “provocateur,” Ryan Tiernan, National Accounts Manager with American Funds from Capital Group, moderated a discussion with Ken Forsythe, Assistant Vice President for Product Strategy with EMPOWER, Jamie Greenleaf, General Partner/Principal of Cafaro Greenleaf, and Tom McKenna, Director of Institutional Sales with Health View Services.

According to the panelists, an important component in today’s environment is educating plan sponsors about the benefits of HSAs. They noted that many sponsors and participants still confuse HSAs with FSAs and do not fully understand the triple tax benefit that comes with them. To that end, Forsythe cited a recent EMPOWER survey that found that 56% of participants confused the use-it-or-lose-it-proposition of FSAs with HSAs and only 22% understand the triple tax benefit of HSAs.

Tiernan emphasized that the triple tax benefits make HSAs more of a financial services product than a health insurance product. “The money goes in tax free, grows tax free and comes out tax free,” he explained. Further highlighting the savings potential, Tiernan observed that, “The 401(k) is the bedrock of retirement savings in the United States, but to just pass over a triple tax free vehicle that is getting both employer and employee contributions would be hazardous to our book of business.”

When asked to explain how she approaches the value proposition, Jamie Greenleaf noted that it’s easier to promote to existing clients because they understand it’s adding another savings vehicle for retirement, but it’s a little more difficult with new clients. She noted that education is key and suggested that the value proposition should be “more about looking at a holistic benefits package and how to structure a benefit that is meaningful to employers.”

Echoing Greenleaf’s comments, Ken Forsythe explained that, in integrating the HSA, his firm looked at ultimately trying to accomplish the best possible retirement plan experience. “The best way to help the advisor is to make sure the HSA does the right thing for both the employer and the participant,” he noted. “It makes the opportunity to position the solution by the advisor to a client or to a participant that much easier.”

Forsythe also explained that, as discussions about HSAs focus on their potential as a retirement savings vehicle, he suggested that the conversation can be addressed during the during the annual enrollment process. “As for implementation, the future of this is looking at annual benefit enrollment process as not a healthcare decision but a financial decision,” Forsythe proposed. He further noted that one misperception with HSA enrollment is that many believe a contribution decision is locked in for the year, when changes can be made throughout the year.

Looking at HSAs from a health and wellness standpoint and the savings that can be achieved, Tom McKenna noted that 80% of companies offer wellness program, but only 6% of those actually measure their return on investment. McKenna explained that his firm is trying to have employees realize how much they could save from modifying their behavior, which could then be rolled up to the employer level.

As an example, McKenna noted that little incremental changes in lifestyle with respect to chronic conditions can result in average savings of $1,200 per person per year, which can result in several million dollars a year in savings for a large company when extrapolated out.

“We’ve talked about this in the retirement space for quite some time, but if we can get in the position where we’re not just going in and saying we can save you some money in your 401(k), but we can add real money to your company’s bottom line is where I see the next phase of this industry going,” McKenna emphasized.