Benefits and Compensation

One of the Best-Kept Secrets in Benefits: HSAs for Retirement  

According to new data from Conduent, 43% of eligible employees don’t participate in a health savings account (HSA). Fifty-seven percent of those who make an HSA contribution don’t capture the full benefit, with an average contribution of less than $500, well below the annual limit of $3,650 for individuals and $7,300 for families.

The underutilization of HSAs means employees aren’t maximizing the benefit of tax savings and cost savings on day-to-day medications and other medical expenditures. By underusing their HSA, they’re also missing an opportunity to leverage this benefit as a retirement vehicle.

Perhaps surprisingly, in the Conduent analysis, HSA participation didn’t vary greatly by age group or income group. The positive news is that if someone was enrolled in an HSA, more income meant greater contributions. However, again, those contributions did not max out the benefit. For example, employees in the highest income group contributed just over 1% of their income—the average being around $1,700.

Retirement Programs Opportunities Live in the Healthcare Benefits Program

The Conduent data suggests there is an opportunity to help employees understand HSAs and their benefits. The HSA can be used like a 401(k) for healthcare savings. Given the two very different benefits from HSAs, healthcare benefit teams and retirement teams that work together can help drive adoption by showing the different ways employees can leverage HSAs.   

For instance, these teams can identify tools to help employees realize the impacts across benefits. As an example, for retirement, an automated calculator pulling in all an employee’s benefits accounts—401(k), social security or defined benefit, and HSA—could provide a more complete picture for the employee’s planned retirement. By automatically factoring in an HSA, employers create a passive engagement opportunity to show the HSA as a retirement savings vehicle. A collaborative view helps HR leaders show how teams are driving the value of all benefits programs.

Drive Cohesive Engagement Across the Benefits Ecosystem

HR is focused on creating an ecosystem that integrates benefits that span people’s evolving situations. For individuals, that can be more challenging because they often need to focus on a moment in time and how the benefits connect to one another to drive an outcome that is relevant to only one person. For example, the healthcare benefit of an HSA may be more important for an individual with young children. Given the life stage, retirement savings are a lower priority.

Complementing a robust open enrollment engagement plan with an ongoing strategic communications plan can increase employees’ engagement in their benefits and ultimately help them better understand and utilize them. Consistent life-cycle communications provide an opportunity for HR teams to meet people where they are and their immediate needs while helping them balance that with a look ahead to what they need when they reach 65.

By asking employees how they want benefits communicated to them from a menu of options and then delivering, communications become more relevant. One employee may want a text message occasionally but doesn’t want e-mails, while another may be focused only on e-mails.

Leveraging Successful Models

Employers have found successful benefit models to drive engagement, which can be leveraged to increase participation. Culture also plays a role in engagement. In companies where people feel like the employer cares, benefit engagement is likely to be higher.

Because HSAs work similarly to a 401(k), there is an opportunity to take what employees learn from those education efforts. When an employer offers a 401(k) match, it is, in effect, setting a benchmark and enticing employees to meet that match. HSA contribution maximums can signal the benchmark, but companies aren’t communicating thoseHSAsavings goals or expectations.

A productive way to establish benchmarks is to automate a savings rate. In operation, an individual would say, “I want to save 10% for retirement.” Then, an employer’s integrated HSA and 401(k) solution would automatically invest the most effective way possible. The solution would calculate the employer’s 401(k) match and the HSA match, and then the extra contribution would go toward maximizing the 401(k) to the limits and then the HSA to the maximum contribution amounts. The automation creates the most tax-efficient way to save for retirement.

Using Data to Inform Communications Strategy

Benefits teams have established metrics for employee participation in 401(k)s, and they have a target to meet and historical data to use in decision-making. But for HSAs, the data and metrics are less likely to exist.

Teams can lean into HSA data to learn how many people are investing and how many people are saving. They can also leverage communications around key life moments, like having a baby, to incorporate strategic messaging about an HSA. Or, they can identify employees who are contributing to their 401(k) but missing an opportunity with the HSA. There is an opportunity to use that data to inform the overall engagement strategy to predict engagement and savings strategies.

John Larson is a Vice President at Conduent, supporting clients with their health and welfare, retirement, and HSA/HRA administration. With more than 14 years’ experience in the benefits space, Larson has helped companies design and deliver benefits that transform the employee experience. He began his career as a fiduciary investment consultant and has held product and strategy roles throughout his career. Larson also holds a BA in economics from Bucknell University and a JD from DePaul University College of Law.

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