PANC 2016: HSAs and DC Health Care

Advising about saving for retirement health care costs can add to an adviser’s value proposition.

Christopher Auda, senior director, Marketing and Strategy, at ADP Retirement Services, told attendees at the 2016 PLANADVISER National Conference that the movement of using health savings accounts (HSAs) to save for retirement is a natural convergence.

Chad Metzger, regional vice president, DCIO Mutual Fund Sales, at Nationwide Funds, says HSAs are for advisers because the ‘S’ stands for ‘savings.’ He points out that HSAs have triple tax advantages for employees—savings are put in on a tax-deferred basis, earnings on the accounts are tax-free and distributions from the accounts are tax-free. Metzger added that after retirement age, non-medical-related expenses can be paid from HSAs, but those payments are subject to income tax.

“Employees are being taught by employers that HSAs are spending plans, but to the extent employees can keep from using the savings for current costs and can invest their HSA assets, there is tremendous opportunity for retirement savings,” he said. Advisers can educate employees about the diversification of retirement savings and the tax benefits of HSAs.

Chad J. Wilson, investment director and co-founder of HighTower Fiduciary Plan Advisors, who moderated the panel discussion, noted that plan sponsors have to have a high-deductible health plan (HDHP) in order to offer HSAs. He added that HSAs are valuable for highly compensated employees who need a way to save more on a tax-deferred basis than statutory limits on retirement plans will allow.

Dan Steele, SVP and head of Retirement Field Distribution at BNY Mellon Retirement, believes the use of HDHPs will grow. “It is similar to the move from defined benefit plans to defined contribution plans,” he said. “Employers want to lower their health care budget, so more will move to HDHPs and HSAs.”

Auda said it is a new idea, but he believes it will take off as more focus is being given to total financial wellness. “Advisers need to get into the market and offer education before competitors do. Get in the game now,” he told attendees.

“You position yourself as a retirement expert, and you agree that health care expenses will be employees’ biggest cost in retirement. Do you have a solution to address this?” Steele queried.

NEXT: Getting into the health care advising game

Auda said advisers can partner with an HSA provider to incorporate HSAs into their practice or just refer clients to an HSA provider. Steele added that if advisers incorporate HSAs into their practice, they need to start with vetting providers. He said Access Point HSA is a good site for vetting providers.

According to Metzger, there are some providers out there that will white label a product for advisers. He added that until the market evolves, fee-based advisers are best to get into the market now. They can provide consultation, advice and employee education.

Steele noted that HSAs are the single-best tax-advantaged solution to saving for retirement health care expense, and they are growing 23%, with zero intermediary distribution. “Advisers are in the best position to market HSAs. It can be an adviser’s ‘hook,’” he said.

Steele added that advisers can incorporate health care advising into their value proposition. It’s as simple as asking a company if they have an HDHP, and if so, telling the company you can help with HSAs, he told attendees.

Auda warned that the new Department of Labor fiduciary rule comes into play if an adviser is advising employees about HSA investments, and if 12b-1 fees are related to the investments. However, advisers do not have to get down to the investment advice level to offer a value-add to clients, he added.

As for pricing, Wilson suggested advisers view HSA consulting as project work and price similarly.