Data & Research July 14, 2015

HSAs Woefully Underutilized, HelloWallet Finds

Participants in health savings accounts contributed a median of $700 a year.
Reported by

Given that there is little information on how health savings account (HSA) participants make use of these savings vehicles, HelloWallet studied more than 400,000 accounts held by UMB Bank, one of the largest HSA recordkeepers in the U.S., and found these plans are grossly underutilized.

Over the past 30 years, U.S. employees’ health care costs have risen more than 50% and employers’ costs have more than tripled, prompting many employers to adopt high-deductible health plans (HDHP) along with HSAs to enable participants to save for the high deductibles, HelloWallet says in its new report, “Health Savings: The Consumer Finance of Health Savings Accounts.” Citing a 2014 survey by TowersWatson, HelloWallet notes that 82% of large employers planned to offer some form of a HDHP in 2015, up from 73% in 2014 and a mere 21% a decade ago.

Analysis of the UMB Bank data from 2013 found that 42% of HSA account holders save their annual contributions throughout a 12-month period, and 30% spend nearly all of their contributions. The remaining account holders spend or save in relatively equal proportions. Only 4% of account holders eligible to invest their balances actually invest the money. On average, older and higher-income employees contribute more than 200% more than younger and lower-income employees. Company matches also prompt more engagement; the median account holder with an employer contribution defers more than 200% more into an HSA than the median account holder without an employer contribution.

NEXT: HSA savings rates

HelloWallet also found that savings rates in HSAs are very low. While the maximum HSA contribution amount that the Internal Revenue Service allowed in 2013 was $3,250 for single coverage and $6,500 for family coverage, the mean deferral was $1,591 and the median deferral was just $700. A mere 5% of account holders contributed the statutory maximum.

This could put their retirement savings at risk, HelloWallet says: “If employees do not contribute to their HSAs, they will miss valuable tax savings, or worse, may lack sufficient savings in liquid accounts to afford their deductible or out-of-pocket maximums related to major medical emergencies. They may instead choose to forgo or postpone necessary care—or they may choose to finance their health care with credit cards, payday loans or by breaching their 401(k) accounts.”

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HelloWallet concludes that employer matches are an important element of HSA plan design and that HSA sponsors should encourage participants to invest their funds rather than sitting in a checking account only to be eaten away by inflation, as well as to increase their savings rates.

UMB Healthcare Services recently issued a report in which it projected that a 40-year-old employee earning $80,000 who starts to maximize his HSA contributions and earns a 5% return will have more than $306,000 by age 65, so the potential for HSAs to amass sizeable amounts of money is real and more employees can be made aware of their potential.

The HelloWallet report can be uploaded here.

Compliance July 14, 2015

ERISA Plans Not Safe from Government-Owed Restitution

A federal court has found a retirement plan participant’s plan balance can be garnished for money owed to the U.S. government.
Reported by

The U.S. District Court for the Western District of North Carolina has ruled that neither the Employee Retirement Income Security Act’s (ERISA’s) anti-alienation provision nor the anti-alienation provision in the Internal Revenue Code provides a bar to the garnishment of government-owed restitution from a qualified pension plan.

Section 206(d) of ERISA, the anti-alienation provision, provides that “each pension plan shall provide that benefits under the plan may not be assigned or alienated.” But Chief U.S. District Judge Frank D. Whitney agreed with the U.S. government’s argument that the Mandatory Victim Restitution Act of 1996 (MVRA) provides a Congressional exception to ERISA’s anti-alienation provision with regard to the enforcement of restitution against a criminal defendant.                  

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According to the court opinion, the MVRA provides that the U.S. may enforce a judgment imposing a fine [or an order of restitution] in accordance with the practices and procedures for the enforcement of a civil judgment under Federal law or State law. The MVRA says, “Notwithstanding any other Federal law (including section 207 of the Social Security Act), a judgment imposing a fine may be enforced against all property or rights to the property of the person fined,” and it lists a few exceptions. The court agreed that defendant Willard Edward Wilson’s interest in the United Brotherhood of Carpenters Pension Fund did not fit within any of the exceptions listed.

One of the exceptions listed in the MVRA was “property which would be exempt from a levy for the payment of federal income taxes.” Whitney noted that Congress has mandated that for purposes of enforcement of the Internal Revenue Code’s alienation provision, a restitution order is to be treated as “a lien in favor of the United States on all property and rights to property of the person fined as if the liability of the person fined were a liability for a tax assessed under the Internal Revenue Code of 1986.” The court cited two court cases which emphasized that tax liabilities may be garnished from an ERISA plan and thus, under the IRC alienation provision, so may government ordered fines or restitution.

Wilson was convicted of conspiring to defraud the United States by facilitating a mortgage fraud scheme. He was ordered to pay restitution in the amount of $850,374.71. The government obtained a Writ of Continuing Garnishment against Wilson’s interest in the United Brotherhood of Carpenters Pension Fund, but the fund claimed that Wilson’s pension benefits are exempt from garnishment under ERISA. So, the government filed the lawsuit.

The opinion in USA v. Wilson is here.

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