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A summary of the articles included in the February 2024 edition:
- Study Identifies an Opportunity to Increase HSA Contributions
- ABA to DOL: Exclude HSAs From Coverage Under the Fiduciary Rule
- HSA Deposit Rate Update – December 2023
- How Younger Generations are Taking Advantage of HSAs
- Smart Money Podcast: What’s an HSA? Growing Wealth with Health Savings Account Investing
- 401(k) & HSA: The Perfect Retirement Power Couple?
Study Identifies an Opportunity to Increase HSA Contributions
A 2023 employer survey conducted by the Plan Sponsor Council of America (PSCA) provides insight into how companies are funding their employee’s Health Savings Accounts. This study is conducted annually and is one of the leading benchmark studies on Health Savings Accounts.
According to the report, about three-quarters of all employers contribute. Among this group, 23.6% provide a fully front-loaded contribution at the beginning of the plan year. This timing is most attractive to employees, as it gives them immediate access to balances to reimburse qualified expenses. Also, employer contributions vest immediately, so an employee who leaves the company mid-year retains the full employer contribution. For employers, a front-loaded contribution increases the attractiveness of the HSA-qualified medical plan versus other employer-sponsored coverage offered. But, as noted, it comes at the risk that departing employees retain the full contribution.
The other three-quarters of employers disburse funds in multiple payments during the year. The most popular approach (41% of total employers) is a contribution per pay period. This timing reflects the belief that Health Savings Account contributions represent compensation, and other compensation (like pay) is distributed as earned. It’s less attractive to employees because they don’t receive a lump-sum up front to pay a large bill early in the plan year.
ABA to DOL: Exclude HSAs From Coverage Under the Fiduciary Rule
In a comment letter sent to the Department of Labor, the American Bankers Association’s HSA Council urged the agency to exclude health savings accounts from proposed amendments to its investment advice regulation and related prohibited transaction exemptions.
The proposal expands the definition of “fiduciary” under the Employee Retirement Income Security Act of 1974 or the Internal Revenue Code of 1986. Proposed changes include a new regulatory definition of fiduciary when a person renders investment advice for a fee or other compensation for purposes of Title I and Title II of ERISA, as well as related proposed amendments to Prohibited Transaction Exemption 2020-02 and several other administrative exemptions from the prohibited transaction rules applicable to fiduciaries under ERISA. The fiduciary proposal’s definition of individual retirement accounts includes HSAs.
ABA said HSAs should be excluded because of the significant differences between IRAs and HSAs. If HSAs are not excluded from the proposed rule, ABA asked the department to consider that the platform provider exception apply and PTE 2020-02 should be revised to expand the definition of “financial institution” to include IRS-approved nonbank trustees.
HSA Deposit Rate Update – December 2023
The 2023 calendar year wrapped up with three consecutive FOMC meetings all resulting in an unchanged federal funds rate that sits in the range of 5.25% – 5.50%. The latest commentary and projections from the Fed have turned more dovish to end the year and have signaled that the hiking cycle is likely over and that rate cuts are possible later in 2024. However, any moves will continue to be highly dependent on inflation and other economic data.
The rapid rise in the federal funds rate over the course of 2022 and 2023 has resulted in continued increases in the average rate paid on HSA deposit balances. As of December 31st, 2023, HSA providers were paying an average rate of 0.42% at the $1,000 balance threshold, an increase of 8 basis points from September 2023. At the $10,000 balance threshold, the average rate was up to 0.52%, an increase of 10 basis points from September 2023.
How Younger Generations are Taking Advantage of HSAs
Historically, those approaching or entering retirement have significantly underestimated their cost of living, particularly when it comes to healthcare. This trend is beginning to change, however, with younger generations getting ahead of future expenses by exploring a wider range of retirement avenues, including HSAs.
According to the 2022 Devenir & HSA Council Demographic Survey, one in five Americans in their 30s had an HSA at the end of 2022. Additionally, younger consumers are not just saving to their HSA, they’re also taking advantage of the investing options. The Employee Benefit Research Institute’s (EBRI) Analysis shows how younger generations are becoming power users of HSAs, with Millennials and Gen Z representing 60% of all investment accounts.
As younger generations continue to embrace HSAs, including Millennials, who make up more than one-third of the current workforce at 39.4%, it’s critical they understand how to maximize HSAs for both short- and long-term goals.
Smart Money Podcast: What’s an HSA? Growing Wealth with Health Savings Account Investing
Welcome to NerdWallet’s Smart Money podcast, where we answer your real-world money questions. In this episode:
Understand the different ways you can utilize a health savings account and learn tips and tricks for HSA investing.
How does HSA investing work? Investing Nerd Alieza Durana joins Sean and Sara to answer a listener’s questions about health savings accounts — what are HSAs, how do they work, and what are the benefits of having one? She discusses how you can use HSA funds for qualified medical expenses, how HSAs are similar to 401(k)s or Roth IRAs, and the triple tax advantages of HSAs. She also addresses the debate around whether to spend HSA funds on current medical expenses or save them for future healthcare costs in retirement, which leads to a discussion on balancing the need for immediate healthcare with long-term savings goals.
401(k) & HSA: The Perfect Retirement Power Couple?
Approximately 20% of respondents didn’t know that an HSA is portable when losing or leaving a job.Health Savings Accounts are increasingly being positioned as part of a holistic retirement savings approach rather than an account to fund current health care expenses, according to the Plan Sponsor Council of America’s (PSCA) 5th Annual Health Savings Account (HSA) survey, which polled more than 500 employers about trends in design and administration as well as participant usage. More than 40% of employers indicated they present HSAs to employees as a retirement savings tool, up by 27% over two years.
The survey found nearly 90% of eligible employees had an HSA in 2022, and 80% of those reported they contributed to their HSA, up from 72.8% in 2021. The average participant contribution in 2022 was $2,323, a decrease from the past several years, which could be a result of the pandemic and recent economic challenges, according to PSCA.
“Concern for employees being able to fund their HSAs is growing among employers as the economy continues to struggle with higher costs of living, and many are putting supports in place to help,” said Hattie Greenan, director of research and communications at PSCA. “Employers see the benefits of HSAs to help employees cover health care expenses now and in the future and are structuring their programs to help employees do so.”