Health Savings Accounts, Retirement and ERISA
With Experience Comes (a Bit of) Wisdom
My introduction to ERISA occurred while working at The Carlyle Group. Tasked with evaluating industries and investing in promising companies, the deal teams did not require detailed knowledge of the law. Instead, our outside counsel would engage ERISA specialists before giving us an “all clear” on the transaction. And even though they never found anything, the lesson stuck, ERISA = potential danger.
Later, as HelloWallet’s CFO, I read up on the law and even attended ERISA conferences, coming to better appreciate the law’s intentions. Aware of the potential for abuse within the financial services space — financial “products” are often so complex even “qualified” investors can struggle — I watched with interest the ERISA “action” unfold as lawyers debated employer obligations. Even still, ERISA never struck me as a prohibition on common sense, or a barrier to helping employees achieve financial success. Yet I could see the weight of ERISA as reason to proceed cautiously, and sometimes not at all.
This caution can have consequences in other areas of employee benefits. As employers increasingly move to High Deductible Health Plans, consumer Health Savings Accounts continue to grow in popularity (see Devenir’s 2014 Report here). Encouragingly, account holders are beginning to “engage” more in their health spend, producing a stronger “consumer” signal that may one day improve clinical care, perhaps even health outcomes, transforming pockets of the industry along the way.
However, underneath this account growth is a tale of two cities. Some participants understand the retirement savings aspects of Health Savings Accounts. Most, unfortunately, do not, and spend down the balances each year. A wise financial strategy in an environment of “use-or-lose” Flexible Spending Accounts, it misses the potential of health savings accounts. If compound interest truly is the 8th wonder of the world, as Einstein is often (incorrectly) quoted, we should look to harness the HSA’s long-term investment options.
For employers, tasked with offering competitive cash compensation packages and comprehensive benefits, striking the right balance between retirement messages and other program decisions is not easy. On the one hand, HR departments continue to refine their retirement offerings through increasingly sophisticated financial products, such as managed accounts and alternatives. Aware of their “fiduciary” responsibilities, many employers even keep consultants on standby. And CFO’s can quickly cover the now familiar 401(k) match contributions and discrimination testing, as applicable, before turning to the often-meatier task of long-tailed employee benefit expense trends (e.g. healthcare).
On the other hand, Health Savings Accounts are hitting employers from a completely different direction — the health industry — one largely focused on health insurance and provider networks. As the market has matured, brokers, plan administrators and others have improved High Deductible Health Plan participant communications. However, the critical coupling of consumer health plans to the HSA — in particular the message of account flexibility — is still in its infancy. Explaining the difference between “use-or-lose” Flex Spending Accounts and permanent, annual rollover of Health Savings Accounts tend to take up the free time of enrollment cycles, leaving little room for the health “retirement” savings discussion. ERISA is often cited as a concern.
This is a missed opportunity. Guidance from the Department of Labor (FAB 2004–1 and 2006–2) identified several ways in which an employer can help employees set up HSA’s without them becoming subject to ERISA. In particular, this guidance clarifies that employers can make contributions to HSAs on behalf of their employees AND introduce an investment line-up, so employees can build greater value longer term, say for retirement. Of course, there are rules that employers need to be mindful of — the employee must be offered a reasonable choice of investment options and must be permitted to move their funds to another HSA. These are reasonable (and achievable) limitations. Still, many employers are reluctant to tackle the “health savings account as a retirement savings instrument” message.
In contrast to my own initial — and wrong — impression of ERISA, employers have nothing to fear from incorporating a retirement message into their consumer health and HSA education campaigns. Further, my sense from listening to Department of Labor leadership is they want nothing more than worker success. Passed in 1974, the law’s drafters would not have wanted to stand in the way of today’s truth: health savings accounts are increasingly part of an employee’s retirement strategy. Here’s to more of us getting the message.
Thanks for reading. Comments and suggestions for other topics welcome.
A special thanks to HSA Coach Advisors Roy Ramthun, aka “Mr. HSA,” Senior Director at West Health Policy Center and Jen Berman at Holder Law Group, as well as Pat Jarrett of Health Savings Administrators, who provided much appreciated editorial review. Opinions are solely my own, however.
Within the behavior genre, my review of Duhigg’s bestseller, “The Power of Habit: Why We Do What We Do in Life and Business” here. Within the investment area, my review of Rick Edelman’s bestseller, “The Truth About Money: Everything You Need to Know About Money” is here. My review of John Bogle’s, the co-founder of Vanguard, book, “The Clash of Cultures: Investment vs. Speculation” here.
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