PLANSPONSOR - February/March 2021 - 13

HSAs and 401(k)s Vie for Contributions
MORE than half (56%) of 401(k) participants
reduced their retirement plan deferrals
in the first year they contributed to a
health savings account (HSA), according
to a study conducted by the Employee
Benefit Research Institute (EBRI): " Two's
a Crowd: Do HSA Contributions Crowd
Out 401(k) Contributions? "
In general, earning more correlates
with deferring less into one's 401(k)
account the first year that plan participants
start saving in an HSA, the study found.
" Not only does the amount of 401(k)
contributions decrease as HSA contribution
levels increase, the higher the 401(k)
contribution, the greater the reduction in
401(k) contributions among those who
[saved] to their HSA for the first time, "
notes Paul Fronstin, director of the health
research and education program at EBRI
and report co-author.
The EBRI survey highlights the
need for retirement plan participants to
establish a savings hierarchy. Low-income
workers also that first year significantly
reduced saving to their retirement plan in
favor of their HSA, the findings show.
Whether participants are building
a health care nest egg for retirement or
a temporary balance to finance medical
costs in the current year, there are still
best practices they should follow to ensure
their retirement saving remains steady
and strong. " One best practice, " says Brian
Hanna, a partner and executive vice president
at Everhart Advisors, " is you should
save into your qualified employer plan up
to the match level first. Then save into your
HSA up to the maximum annual contribution-and
not spend your HSA on an
annualized basis but use it as a retirement
savings vehicle. Then, if you have money
available for saving, you can go back to the
401(k) and make a higher contribution. "
Many participants stand to benefit
from being taught such practices and
how to balance what they save. The 2020
PLANSPONSOR Defined Contribution
(DC) Survey found that 48.8% of plan
sponsor respondents offer HSAs. Not
surprisingly, that percentage increases
as plan size grows: from 25.5% of micro
plans, with less than $1 million in plan
assets, to 72.7% of mega plans, exceeding
$1 billion in plan assets.
Generous employers might keep
in mind that the larger their contribution
to employees' HSAs, the more likely
those employees will redirect potential
401(k) savings into their HSA instead, the
EBRI study found; they could encourage
employees to not neglect their 401(k).
As to further findings, for employees
with both savings vehicles, the crowding
out of retirement saving by HSAs was
modest at the median. Looking at the
range of reductions to increases in 401(k)
TIDBITS
What Are Americans Doing
With Their Finances This Year?
Post-election 2020, working and retired Americans turned their focus to
financial basics and survival. They were more concerned about economic
issues-both on a personal and national scale-than they were earlier last
year. Many respondents to a survey said they are taking steps to bolster their
finances, with a large percentage wanting to regain financial stability in 2021.
contributions, at the median, there was
a $34 reduction in annual contributions
for the first year participants allocated
money to their HSA. At the lower end of
the range, there was a $5,217 reduction in
annual contributions.
While 401(k) contributions fell $315
at the median among dual participants
directing more than $4,350 into their
HSA, among such participants saving
$1,000 or less to their HSA, the median
401(k) contribution fell only $8.
For participants who had deferred
more than 10% to their 401(k) the year
before HSA adoption, the amount they
saved in the 401(k) fell $482 in light of the
new benefit. For those who had deferred
more than 6% to 10% to their 401(k), their
amount saved fell $49. -Rebecca Moore
70%
Will put more money
into savings
33%
May now work with
a financial professional
25%
Prioritize saving
for retirement
Source: Personal Capital Corp., a subsidiary of Empower, " Back to (Financial) Basics:
How Americans are responding after an unprecedented 2020 "
PLANSPONSOR.COM February - March 2021 13
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