Culture of Saving: HSA Participants Save More in Their 401(k)s

Pattern of higher balances holds up across all compensation levels

By Stephen Miller, CEBS Aug 5, 2011

U.S. workers aren't taking an "either/or" approach when it comes to HSAs and 401(k) savings.

Employees who participate in health savings accounts (HSAs) and defined contribution retirement plans such as 401(k)s accrued more than twice as much in their 401(k)s as the average 401(k) participant, according to a study by Fidelity Investments of the HSA and 401(k) plans it manages.

Fidelity's study looked at account balance data for nearly 11 million corporate defined contribution plan participants and approximately 48,000 HSA account holders. At the end of 2010, Fidelity’s average 401(k) balance was $71,500; but for participants contributing to an HSA, the average 401(k) balance was $170,500—a full 138 percent greater.

“HSA participants understand the tax benefits offered over the long haul, so it’s not surprising they are some of the most active savers in tax-advantaged retirement accounts too,” said William Applegate, vice president of Fidelity Investments. “As more employers turn to high-deductible health plans to help rein in escalating health insurance costs, they’re also seeking ways to help employees save for future qualified medical expenses. An HSA, like a 401(k), is a benefit that employers can offer workers to help create a culture of saving in the workplace.”

High and Low Earners

Fidelity’s research uncovered larger average 401(k) balances across all compensation levels of HSA contributors compared with 401(k) participants without HSAs. For example:

At year-end 2010, the average 401(k) balance for a participant earning $20,000 to $40,000 per year was $19,000. For the same time period, the average 401(k) balance for a participant making HSA contributions was $30,000—59 percent greater.

At the higher compensation level of $100,000 to $150,000, the average 401(k) balance at year-end 2010 was $159,000. But for participants making HSA contributions, their average 401(k) balance was $260,000—64 percent greater.

Diligent Savers

HSA participants on average deferred 8.9 percent of their annual salaries to their 401(k) accounts vs. the overall average 401(k) deferral rate of 8.2 percent. Tellingly, more HSA participants increased their 401(k) deferrals than decreased them during their first year in an HSA (19.7 percent vs. 15.4 percent respectively). The greater likelihood of HSA participants increasing rather than decreasing their 401(k) deferrals reflects what Fidelity has seen in its overall 401(k) population for eight straight quarters.

Among those HSA participants who decreased their 401(k) deferral in their first year in an HSA, more than 25 percent ended up increasing their deferrals in the subsequent year.

In March 2011, Fidelity reported that a quarter of HSA account holders spent less than 10 percent of their annual contributions, allowing the balance to be carried over for future qualified medical expenses (see the SHRM Online article, "HSA Participants: Savers vs. Spenders"). The average annual 401(k) deferral for these active HSA "savers" was 11 percent—nearly 3 percentage points higher than the overall average 401(k) deferral rate.

In addition, while the vast majority of HSA contributions default into cash accounts within the plan, this more diligent HSA savers population invested 23.1 percent of their assets in noncash investments, greater than the 15.1 percent invested by the average HSA contributor.

More Embrace HSAs

The number of HSAs in the U.S. grew 27 percent in 2010 for a total of 6.2 million accounts nationwide, according to market data by Devenir. Fidelity said its HSA business grew 52 percent in 2010.

As employers look for ways to encourage HSA participation, many are providing an employer contribution as an employee benefit, similar to those made to 401(k) plans:

Of Fidelity 401(k) plans, 79 percent provided some level of employer contribution to a participant’s retirement account as of year-end 2010.

Of Fidelity plan sponsors offering HSAs, 83 percent provide some level of employer contribution to a participant’s HSA account.

“There’s no question a significant shift is occurring in the way American employers fund and provide health insurance,” said Applegate. “Providing an HSA with an employer contribution is a workplace benefit that can help employees stay on the right path to retirement, saving for their future qualified medical expenses just like they do for their future income needs in a 401(k).”

Stephen Miller, CEBS, is an online editor/manager for SHRM.​

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