Average 401(k) Balance Among HSA Participants More Than Double Non-Participants’

Better understanding of tax deferral, long-term savings likely at play

Participants in health savings accounts generally save twice as much in their 401(k) accounts than non-HSA participants, Fidelity announced Monday. In a study of Fidelity plans, the average 401(k) balance at the end of 2010 was $71,500, but the average balance for participants who were also contributing to an HSA was $170,500.

William Applegate, Vice President, Fidelity InvestmentsWhile the study did not break this behavior down into causality, William Applegate (left), vice president of Fidelity Investments, pointed to two trends that he believes are behind the higher average balances among HSA participants.

First, “people are contributing to both an HSA and a 401(k),” Applegate told AdvisorOne. “We believe they better understand and embrace the benefits of tax deferment and long-term savings. To say another way, they may just be better savers overall.”

Participants’ higher average account balances were present across all compensation levels. HSA participants who earned between $20,000 and $40,000 saved 59% more in their 401(k)s than their non-HSA cohorts. HSA participants who earned between $100,000 and $150,000 saved 64% more than workers who didn’t participate in an HSA.

“Behavior was consistent across all income levels, so it wasn’t just that people had more money to save, but they were saving more significantly both in their HSA and their 401(k),” Applegate noted.

Also contributing to higher average account balances is a higher average deferral rate. HSA participants defer on average 8.9% of their annual salaries, the study found, compared with non-HSA participants who defer on average 8.2%. HSA participants are also more likely to increase their 401(k) deferrals, a trend that has continued for eight quarters, according to the study.  

Adding to higher balances among HSA participants compared with non-participants is a raised awareness of the magnitude of health care expenses in retirement, Applegate said.

“When companies roll out an HSA, a lot of education is needed,” he said. One of the elements that Fidelity sees a lot of companies using “is to begin educating people about the amount of money that they’re going to need to pay for health care in retirement. By introducing an HSA, you’re raising awareness with participants and, obviously, giving them a vehicle to begin saving.”

There are two trends in the HSA space that may be analogous to the automatic enrollment trend in the defined contribution world, Applegate added. “Increasingly, employers are making HSAs with a high-deductible health plan the only option for their employees,” he said, noting that 36% of participants that Fidelity supports work for companies that make HSAs the only choice for their workers.

“The other aspect is that roughly 80% of employers provide a contribution directly into employees’ accounts, and unlike a 401(k) where the employer contribution is typically done in the form of a match, for HSAs, most of our clients are making a direct contribution, regardless of whether or not the employee’s contributing,” according to Applegate.

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