Data & Research April 5, 2017

HSA Use Growing

Although more people are enrolling HSAs today, misconceptions still hold back many from making the most out of these accounts.

 

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In the midst of higher health care costs, Fidelity Investments finds that Health Savings Accounts (HSA)s are becoming more popular. The firm’s 2016 year-end report of its own HSA business may reflect some new trends in the wider HSA industry.

According to the study, adoption of HSAs increased by 21% in 2016, up four percentage points from 2015. Total HSA assets climbed 47% to reach $2 billion. Fidelity finds the average account holders are younger individuals with higher incomes. The average account balance was $3,520 and the average contribution was $3,019.

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However, although 70% of employees said they understand how their HSAs worked, several still had misconceptions about HSAs, and many lacked awareness of their HSA benefits. Fidelity found that 40% believe they lose unspent HSA funds each year; 43% don’t know HSA funds have a triple-tax benefit; and 53% are not aware of the non-medical withdrawal provision available to those ages 65 or older. Furthermore, Fidelity notes that Americans continue to underestimate how much they would spend out-of-pocket on health care in retirement. Forty-four percent of employees said they believe they will spend less than $50,000. Fidelity estimates that a couple retiring at age 65 today would spend about $260,000.

Additionally, 46% of employees don’t know HSA funds can be invested in mutual funds.

In fact, only 6.1% of accounts are invested, amounting for 21.1% of total assets. However, the average asset balance for invested account holders is $16,000. Moreover, the research suggests several account holders are willing to learn about the benefits of HSAs. In 2016, 26.8% of account holders called for assistance and about 40% took action – a higher rate than what the firm reported for its defined contribution (DC) business.

The research also indicates that savers with HSAs aren’t necessarily falling back on saving for retirement through tax-advantaged plans. The report notes that those contributing to HSAs have an average of $119,000 more in DC savings than those that don’t. The firm also notes that HSA account holders with a DC employer match contributed $1,054 more to their HSA than those with no DC employer match, “implying that a DC employer match enables the person to redirect money to their HSA.” 

Compliance April 5, 2017

EBRI Calls for Auto Plan Portability

If workers could automatically roll their 401(k) plan over to a new employer, the Institute says this could generate an additional $2 trillion in retirement savings.
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The Employee Benefit Research Institute (EBRI) estimates that if Americans were able to effortlessly, automatically roll their 401(k) balance over to a new employer every time they switch jobs, they would have an additional $2 trillion in retirement savings by age 65. This would be because they do not cash out of their plans when switching jobs. It underscores the value of auto portability for helping to bridge the retirement savings shortfall, EBRI says.

Jack VanDerhei, research director at EBRI, presented these findings at a recent Financial Services Roundtable, “Retirement Plan Portability & Public Policy.”

“Auto portability is needed now more than ever to help tens of millions of hardworking Americans improve their retirement readiness,” says Spencer Williams, president and CEO of Retirement Clearinghouse, who also spoke at the forum and whose firm has developed an auto portability recordkeeping system. “Leading  industry organizations and government officials are beginning to recognize that auto portability, which can be readily adopted by plan sponsors with minimal effort, is critical for plugging cash-out leakage from the 401(k) system and preserving savings already set aside for retirement—particularly for low-income and younger workers.”

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EBRI’s research also found that if all participants with less than $5,000 in their retirement accounts had their account automatically rolled over to a new employer, they would have an additional $1.5 trillion in retirement savings by age 65. This would reduce the retirement deficit for those between ages 35 and 39 by 20%. Because of the long time in their savings horizon, Americans between the ages of 25 and 34 would experience the largest increase in savings, particularly those in the lowest income bracket.

The Bipartisan Policy Center’s Commission on Retirement Security and Personal Savings has recommended that the nation create a private-sector retirement security clearinghouse that could handle auto portability.

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