In spite of growing concern about health care and how they’ll pay for it in retirement, 401(k) plan participants expect to slow down their contributions, according to a report released Tuesday by Mercer.
These new results follow the firm’s release earlier this month of data that shows workers are under the impression that they’re maxing out their 401(k) contributions for the year when in fact they’re only about halfway there.
According to the Mercer Workplace Survey, participants expect to save slightly less over the next 12 months, despite being relatively optimistic about the economy. Those over 50 expect to cut back on savings by as much as 18%.
The problem may be that plan participants are having trouble sharing their saving between different priorities, Dave Tolve, U.S. leader of Mercer’s defined contribution administration business, told ThinkAdvisor on Wednesday.
“A big driver of employee concern and savings activity has to do with health care concerns,” Tolve said. “Everyone talks about the convergence of health care savings and expenses in retirement, and the survey speaks loud and clear to the fact that people’s savings activities will directly reflect their concerns and attitudes with health care expenses in retirement.”
As evidence, he pointed to the rise in popularity of high-deductible health plans and health savings accounts that are frequently offered with them. Almost two-thirds of respondents said their employer offers a HDHP, and 54% say they are enrolled in it. Of those, 83% also have access to an HSA.
“What I’m starting to see is people viewing health care savings mutually exclusive to retirement saving,” he said. “What we expect is happening is as health care savings account contributions are at an all-time high — 68% of respondents who have a high-deductible plan are contributing to a health savings account — our expectation is that there’s a correlation between saving in your HSA and on a corresponding basis, reducing your saving into your 401(k).”
Tolve said he’s seen similar behavior among participants who take a loan from their 401(k). When they begin paying back the loan, they lower their contribution level to the plan in order to reduce the hit on their take-home pay. “If employees are viewing this HSA contribution as a new deduction from their paycheck, in order to keep their take-home pay level, they might be lowering their 401(k) contributions.”
The report also noted that respondents who opt for HDHPs tend to be younger, more likely to have children and more educated than the average participant, although their income and account balances are just average.