PANC 2019: Health Savings Accounts as a Retirement Planning Vehicle

From left: Gregory F. Adams, Fiduciary Investment Advisors; Larry Bohrer, Charles Schwab & Co.; and John Manganaro, PLANADVISER. Photograph by Matt Kalinowski.

Larry Bohrer, vice president, corporate brokerage retirement services at Charles Schwab & Co. Inc., reminded us on Day Two of the 2019 PLANADVISER National Conference (PANC) that, unfortunately, each retiree will be facing about $300,000 in medical expenses. Health care costs are expected to rise 5.5% annually; therefore, upkeep on retirees’ health may be their largest expense. These statistics are from the most recent Devenir HSA [Health Savings Account] Market Survey.

But, reminiscent of the defined contribution (DC) marketplace in its early years, the growth rate of employees using HSAs is 20% per year, Bohrer said.

There’s an increasing awareness of the accounts by plan sponsors and participants, he said. “The tax benefits inside an HSA are better than in a 401(k). HSAs have a triple tax benefit and are portable, unlike flexible spending accounts [FSAs]. One of the lesser known benefits of having an HSA is that it lets people reimburse themselves for out-of-pocket medical expenses over an employee’s lifetime—if receipts are available.”

Gregory F. Adams, a consultant with Fiduciary Investment Advisors LLC, outlined the generally recommended hierarchy of savings: For starters, one should contribute enough to his DC plan to receive the employer match. If the person has a high-deductible health plan (HDHP), and it’s linked to an HSA, his next dollars should go to maxing out the HSA, per his annual IRS savings contribution limit, and after that into the DC plan.

Why aren’t HSAs seen as a long-term investment tool? “Twenty-two million people have invested funds in their HSA,” Adams said. “There’s an incredible range of investments, brokerage windows, money markets available, but there is still a huge gap in participant understanding that HSAs can have a long-term strategy.”

For instance, he said, parents of Millennials don’t talk about HSAs. “They still think ‘401(k) only’ when it comes to retirement savings.”

According to Bohrer, employers can save money by changing to an HDHP health plan, allowing employees the option to save in an HSA. An HSA, he noted, is like an individual retirement plan (IRA) for health care. 

Many recordkeepers are establishing their own platform for the accounts. Others have established partnerships, and some recordkeepers simply have HSA data integration. This is all being driven by employers seeing HSAs as a retirement savings account.

Interestingly, Adams, who is far down the road with HSA services offered, is getting ahead of regulatory bodies. “HSAs are taking the same path as 401(k) and 403(b) plans took 20 years ago,” he observed. “There are lots of vendors in the space, hidden fees, different restrictions, investment funds that are proprietary or not proprietary. We feel that, as HSA assets grow, regulatory bodies such as the IRS and the Department of Labor [DOL] will get more involved. We’re looking at RFPs [requests for proposals] for finding the right providers and documenting why we’re choosing the vendors we choose. We’re performing the due diligence so there are no compliance issues later on.”