PLANSPONSOR - December/January 2020 - 39

INVESTMENT FOCUS
not required, " says Sander Domaszewicz,
senior health care consultant in the
Irvine, California, office of consulting
firm Mercer.
He elaborates: " HSAs are owned
by the individuals; they're not an ERISA
[Employee Retirement Income Security
Act] plan, there's not a plan document, and
the employers are not fiduciaries. That
is a bright line most employers haven't
wanted to cross-as soon as the money
goes in, they don't want to have much
say over controlling the investment
options, because then it might become
a plan subject to ERISA and give them
fiduciary responsibility. "
" The employer can't make or influence
investment decisions, " Adams agrees.
" That area is becoming more complicated,
because we have some HSA providers
building open architecture plans and
others building closed plans. " He notes
that, however, in the case of many closed
plans, the HSA provider serves a fiduciary
role. Alternatively, " If the employer wants
to have a single provider and not be subject
to ERISA, it can hire an adviser to act as
the fiduciary, but that has to be outside the
employer's scope. "
" Without question, if people are able
to devote assets to an HSA, that's a lever
they should pull, but most folks just aren't
there yet to be able to take advantage of
the investing benefits, " says Ed McIlveen,
director of research at Francis Investment
Counsel, an advisory firm in Brookfield,
Wisconsin, and the 2018 PLANSPONSOR
Retirement Plan Adviser of the Year in
the Large Plan category.
According to the Devenir survey,
just 1 million account holders, or 4%,
invest part of their HSA funds-even
though 85% of employers provide an
investment option in their HSA program.
The average balance for that 4% was about
$16,000 mid-year. Most account holders
rely on their HSA as a transaction account
for health care spending, so only about a
third of 2019's contributions remained as
savings through June 30.
HSA providers are taking the long
view, however, and seeing a point over
the horizon where investment is more
commonplace. Fund and recordkeeping
giants Fidelity, Vanguard and Empower
all have a presence in the market.
" People like the independence of the
account-that they can move it to any
provider they want, " says Domaszewicz.
" But, as the balances grow, employers are
realizing there will be 'real money' in
need it tomorrow. Mirroring what's in a
401(k) plan is great for longer-term investment,
but in HSAs we have to consider
the spenders who pull their money out
right away. Those people need good cash
options in accounts with low fees. "
" To me, mirroring the 401(k) is lazy, "
says Jamie Greenleaf, lead adviser at
Cafaro Greenleaf in Red Bank, New Jersey.
" People don't understand HSAs very well,
" HSAs are owned by the individuals;
they're not an ERISA plan, there's
not a plan document, and the
employers are not fiduciaries. "
these accounts before long, and maybe
they should start encouraging employees
to do the right thing, by investing.
" The more progressive employers
are trying to show the HSA balance right
next to the 401(k)'s to cement in people's
minds that this is a long-term investment
option, " he continues. " But they're doing
that with tools and education, rather than
a command-and-control approach. "
Fund Lineup Mirroring
Some providers and employers have
explored mirroring the investments in
their HSAs with those in their 401(k)
plan. " Mirroring fund choices is a term
of art among consultants, but I take it to
mean that the investments are identical
or substantially similar, " McIlveen says.
" [Yet] we find that, by the time people are
able to invest longer-term capital in an
HSA, they have organized and educated
themselves pretty well and are likely to
follow an investment course such as the
one for their retirement. "
Although in DC plans, contributing
and investing have become streamlined
and participants' understanding
has become quite solid, " That hasn't
happened yet with HSAs, " Adams
observes. " People might not need the
money for a long time, or they might
and the first thing to do is show people
their value. Once we clear the hurdle on
why they should have one, then we can
start to talk about investments. "
In her opinion, standard retirement
plan investments may not be suitable.
" They have to be unique to how we spend
our health care savings. It's different
money, and it needs different, thoughtful
investment. " Greenleaf advocates viewing
HSAs as having three buckets to allocate
among: one short term, for immediate
expenses; an intermediate-term allocation,
invested conservatively, to fund deductibles;
and a long-term bucket with equity
exposure for expenses in retirement.
She concedes that mirroring could
trigger more saving, " because people are
connecting the dots. And you want them
to connect the dots, to realize that health
care calls for spending in retirement. But
we have to be careful about the investments
we give them. "
" There's a lot of running room for
HSAs, for people to become aware of the
investment options and to start planning
longer term, " Domaszewicz says.
" The ability to integrate with retirement
accounts will be much greater. We've
got only one way to go, and HSAs will be
much more useful for both employers
and employees. " -John Keefe
PLANSPONSOR.COM December 2019 - January 2020 39
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