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4 Reasons to Integrate Health Savings Accounts into your Retirement Plan Offering

By Jonathan Maertz, AIF®, CPFA, CRPS®

As Americans look into the future and towards retirement, many understand that maintaining their health will be an important part of their overall quality of life after they stop working. However, uncertainty around healthcare costs – both now and in retirement – is a major financial worry among Americans preparing for retirement. So how can employers help their workers reduce financial anxiety about retirement preparedness and increase the likelihood that they will be able to meet their healthcare costs in retirement?

Health Savings Accounts (HSAs) present retirement plan sponsors a unique opportunity to address both the wealth and health of employees planning for retirement.  In an earlier post, Bronfman Rothschild’s Bill Schwartz explained why HSAs are a popular way for individuals to save for medical expenses while reducing their taxable income – in effect, using their HSA as a long-term investment vehicle. And though HSAs typically are introduced to employees through their participation in a high deductible healthcare plan, many recordkeepers are beginning to offer them in an integrated platform where that can be reviewed alongside retirement savings.

In this post, I will explain how retirement plan sponsors preparing their employees for retirement can use an HSA as part of their benefits program to tackle the issue of healthcare costs. Here are 4 reasons to integrate HSAs into your retirement plan offering.

1) Health Savings Accounts Address Concerns About Future Costs

In today’s retirement plan marketplace, holistic approaches increasingly feature a multi-faceted program that offers numerous features, all aimed at improving retirement readiness. While in the past it was sufficient to offer employees a straight-forward savings vehicle and trust that they would responsibly go about making contributions, today’s plan sponsors have seen that the introduction of sophisticated plan design features such as automatic enrollment, auto-escalation, and financial wellness consultation go a long way towards boosting outcomes for their employees. With healthcare being such an important factor in quality of life, we see HSAs as one more tool plan sponsors can wield in improving overall plan health.

HSAs are designed to assist individuals in paying for healthcare expenses both now and in the future. Today, a healthy, 65-year-old male retiree can expect to pay $144,000 to cover healthcare expenses during retirement, and many studies show that we can expect health costs to rise at a rate that outpaces inflation, meaning this number will only grow over time. As HSAs are designed to provide a savings vehicle dedicated to covering qualified healthcare expenses, their ability to grow contributions tax-free helps defray the effect of future cost increases.

2) Health Savings Accounts are Triple Tax-Free Now and in Retirement

HSAs are unique in that they are designed specifically for healthcare expenses yet act more like an Individual Retirement Account (IRA). HSAs are the only triple-tax advantaged savings vehicle of its kind. Participants with an HSA make contributions with pre-tax income, earnings and interest grow tax-free, and withdrawals are tax-free when used to pay for qualified medical expenses. Once in retirement, HSAs include no minimum required distributions and no Social Security or Medicare tax on contributions.

3) Health Savings Accounts can be Easily Integrated into an Existing Plan

Plan sponsors may be concerned about the administrative burden of incorporating an HSA into an existing plan, but in reality it can be done with little added administrative effort. In fact, it is possible for retirement plan sponsors to reduce administrative complexities with a single platform for both defined contribution plans and HSAs (as mentioned previously, many major recordkeepers offer their own HSA programs). With one portal that handles enrollment, retirement plan management, financial wellness programs, and HSA management, participants and sponsors can enjoy the added benefits of having these additional features seamlessly incorporated into their existing accounts.To improve the overall implementation of HSAs into a plan, we also encourage plan sponsors to incorporate HSA education into the front end of employee training, alongside other educational efforts for defined contribution plans and healthcare benefits.

4) Health Savings Accounts can Boost Employee Recruiting and Retention

If American workers are as anxious about medical expenses in retirement (and financial wellness in general) as surveys indicate, then a holistic retirement plan offering can be leveraged for marketing to potential new hires. A retirement plan that alleviates an employee’s concerns about the future will help employers retain existing workers and help attract new talent. By integrating an HSA into a robust retirement plan, your company signals that it understands the challenges to retirement preparedness and is ready to offer benefits that do the most to prepare them. The HSA account also rolls over in the same way a 401(k) account does, even if they choose to change jobs later on, making the benefit to the employee portable.

Conclusion

With the ultimate goal of providing a holistic retirement plan that prepares participants for financial security in retirement, plan sponsors should consider adding HSAs to their plan offering. As a unique vehicle designed to reward savers with triple tax benefits, HSAs can be seamlessly integrated into existing retirement plans while helping employee recruitment and retention. With healthcare costs continuing to increase with each passing year, HSAs provide a welcome sense of financial preparedness for Americans planning for their retirements.

Bronfman E.L. Rothschild, LP is a registered investment advisor (dba Bronfman Rothschild and Bronfman Rothschild Plan Advisors). Securities, when offered, are offered through an affiliate, Bronfman E.L. Rothschild Capital, LLC (dba BELR Capital, LLC), member FINRA/SIPC.
© 2018 Bronfman Rothschild