Fidelity Finds Link between HSA Participation and 401(k) Balance

An analysis by Fidelity Investments found 401(k) participants with a health savings account (HSA) accrued more than twice as much in their 401(k)s as the average participant.

At the end of 2010, Fidelity’s average 401(k) balance was $71,500; but for participants also contributing to an HSA, the average balance was $170,500, a full 138% greater.  

“HSA participants understand the tax benefits offered over the long haul, so it’s not surprising they are some of the most active savers in tax-advantaged retirement accounts too,” said William Applegate, vice president, Fidelity Investments.

Fidelity’s research uncovered larger 401(k) balances across all compensation levels of HSA contributors. For example, at the end of 2010, the average 401(k) balance for a participant earning $20,000-$40,000 per year was $19,000. For the same time period, the average 401(k) balance for a participant making HSA contributions was $30,000, 59% greater. At the higher compensation level of $100,000-$150,000, the average 401(k) balance at year end 2010 was $159,000. But for a participant also making HSA contributions, his or her average 401(k) balance was $260,000, 64% greater.  

The number of HSAs grew 27% in 2010 for a total of 6.2 million accounts nationwide. Fidelity’s own HSA business grew 52% in 2010. And as plan sponsors look for ways to encourage HSA participation, many provide an employer contribution as an employee benefit, similar to those made to 401(k) plans. Of Fidelity 401(k) plans, 79% provide some level of employer contribution to a participant’s retirement account. Of Fidelity plan sponsors offering HSAs, 83% provide some level of employer contribution to a participant’s HSA account. 

“There’s no question a significant shift is occurring in the way American employers fund and provide health insurance,” said Applegate. “Providing an HSA with an employer contribution is a workplace benefit that can help employees stay on the right path to retirement, saving for their future qualified medical expenses just like they do for their future income needs in a 401(k).”

401(k) Savings Behaviors of HSA Participants  

HSA participants on average defer 8.9% of their annual salaries to their 401(k) accounts, versus the overall average 401(k) deferral rate of 8.2%. More HSA participants increased their 401(k) deferrals than decreased them during their first year in the tax-deferred savings account (19.7% vs. 15.4%, respectively).   

The trend of HSA participants increasing their 401(k) deferrals more than decreasing them matches what Fidelity has seen in its overall 401(k) population for eight-straight quarters. And for those HSA participants that decreased their 401(k) deferral in their first year in an HSA, more than 25% ended up increasing their deferrals in the subsequent year. 

 In March, Fidelity reported that a quarter of HSA account holders spend less than 10% of their annual contributions, allowing the balance to be carried over for future qualified medical expenses. The average annual 401(k) deferral for these active savers is 11%, nearly 3 percentage points higher than the overall average 401(k) deferral rate.   

In addition, while the vast majority of HSA contributions default into cash, this more diligent saving population invests 23.1% of their assets in non-cash investments, greater than the 15.1% invested by the average HSA contributor.