Increased Education Necessary for HSAs to be Considered a Worthwhile Retirement Benefit

Increased Education Necessary for HSAs to be Considered a Worthwhile Retirement Benefit

Many Participants Unaware of HSA Investment Opportunities


December 2018, Boston. Across discussions with defined contribution (DC) industry executives throughout 2018, Cerulli Associates, a global research and consulting firm, notes an increased interest in the health savings account (HSA) market. “Interest in the HSA market from the DC community (i.e., defined contribution investment-only asset managers, recordkeepers, advisors/consultants) has peaked in the last 12-24 months due to an increased emphasis on holistic financial planning and financial wellness programs,” explains Dan Cook, an analyst in the retirement practice at Cerulli.

However, HSAs are often used as spending accounts to fund short-term needs (e.g., medical expenses incurred during the year) rather than saving accounts for long-term healthcare expenses. “Many DC plan participants miss the opportunity to accumulate savings for healthcare needs in retirement, not because they do not want to invest, but because they do not know that they can use an HSA to invest,” says Cook. “This knowledge gap can be addressed through education efforts aimed at getting participants, plan sponsors, and advisors to view HSAs as a retirement benefit.”

“A useful starting point is to clearly explain the key benefits for account holders associated with HSAs, such as the triple tax advantage,” continues Cook. “Employees can claim a tax deduction on their contribution, assets in the account grow tax-deferred, and distributions are tax-free when used for qualified medical expenses.” In addition, employers’ contributions are excluded from employees’ gross income, contributions remain in the account until they are used, and the accounts stay with the investor if they change employers or leave the workforce.

Another important consideration is the timing and frequency of HSA-related communications. “Cerulli advocates for consistent HSA communications (i.e., conducted year-round) that are linked with the employer’s retirement plan offering (e.g., DC plan),” adds Cook. “By fostering a strong connection between HSA and DC plans, providers can help participants associate the HSA with retirement savings.” 

In addition to these findings, the fourth quarter 2018 issue of The Cerulli Edge—U.S. Retirement Edition further examines the current state and future outlook of the HSA market and also discusses retirement income solutions within employer-sponsored retirement plans.

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