Retirement advisors might be wondering — why get into health savings accounts? Aren’t HSAs the purview of benefits brokers?
Not anymore, said a panel of industry experts at the 2018 NAPA 401(k) Summit in Nashville.
HSAs have an investment capability that’s right in the advisor’s wheelhouse — after all, who should be talking about asset allocations in an HSA? Not a benefits broker.
And advisors are used to educating not only employees, but employers. Apparently it’s needed, based on the panel’s stories. Companies need help even choosing an HSA — one employer, when asked how it picked its HSA, said they selected it because it was across the street and they thought it would be easier for employees to make deposits.
Advisors might also find HSAs worth investigating due to the following:
- HSAs are triple-tax-free vehicles for employees — tax-deductible contributions, tax-free earnings, and tax-free distributions.
- Enrolling somebody in a 401(k) is an opportunity for a one-time conversation — but if you enroll them in an HSA, you see them every year at enrollment time.
- HSAs provide the opportunity to offer another service to employers while also adding assets under management.
The HSA conversation is changing. Advisors are changing. “Two years ago the conversation was ‘what is an HSA?’ Now we know and we know the impact on employees and their retirement prospects,” said panel moderator Ryan Tiernan, national accounts manager at American Funds.
In the past, implementing an HSA for an employer meant simply ticking the boxes. Now it’s an educational process, helping to show how HSAs work and why they’re important. “Employers are pleasantly surprised I have the knowledge. They want to talk about it,” Jamie Greenleaf, general partner/principal at Cafaro Greenleaf, said.
Where health insurance and retirement plans were siloed in the past, HSAs are the link between health care and finance. “The future of this is looking at annual benefits enrollment as not a health care decision but a financial decision,” Ken Forsythe, Empower’s assistant vice president, Product Strategy, said.
Investments in HSAs
Not only do workers mix up flexible savings accounts’ ‘use-it-or-lose-it’ aspect with HSAs, but, Forsythe said, Empower found only 22% of employees realized HSAs are tax-free.
So it’s not surprising that many workers also don’t understand the opportunity HSAs offer in regards to investing. “Only 18% of assets in HSAs are currently invested,” Tiernan said.
“The investment lineup is evolving,” Greenleaf said. “We’re doing a disservice by mirroring the 401(k). The policy you put in place for investments in HSAs has to be based on employee demographics, their health, where they are in life.”
Employees might be helped by looking at a broader spectrum of where they should be putting savings, Forsythe said. “There’s this notion that I can only put x number of dollars in my HSA, and I’m going to end up using it all. The point is that those same individuals could be potentially saving too much in their 401(k) — they could be allocating it to the HSA to have a more tax-efficient outcome.”
But on the other hand, he said, “If something happens and they don’t have the money set aside for that in the HSA because it’s all in investments, we could put them in the position of having to sell at a loss. The HSA structure needs to facilitate a self-insurance model — the individual must maintain a certain amount of money in cash, so it’s ready for them to use, then put the rest in investments.”
Making the case to employers
With established clients, panelists said it was helpful to connect HSAs to helping employees be better prepared for retirement. For new clients, you show a more holistic benefit. “We’re not just going in and saying ‘I can save money on your 401(k)’ — we’re going in and saying ‘I can save on your bottom line,’” Tom McKenna, Director of Institutional Sales at HealthView Services, said.
The panelists offered this advice:
- Look to leverage your vetted expertise: Take what you’re good at and move it to an area you’re not focusing on. You do investor education, you can do HSA education.
- Collect success stories: As you compile success stories, you can demonstrate how valuable a DC advisor can be to this equation.
- Don’t sell yourself short: “What we do is valuable,” Greenleaf said. “It’s not just investment, it’s plan design, it’s how you educate employees. Employers aren’t afraid to pay for a service that’s of value.”
— Check out Few Americans Saving HSA Assets for Retirement on ThinkAdvisor.