The Retirement Benefit Your Employees Need Most

Monday, September 19, 2016
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With healthcare costs becoming increasingly more burdensome for retirees -- currently making up an estimated $245,000 in retirement costs, according to Fidelity -- employees who want to retire at a reasonable age (and, more importantly, stay retired) need more than a simple standalone 401(k).

While it's important for employees to take advantage of any employer match options tied to their 401(k) offering, they'll be set up for a healthier retirement if they start storing retirement savings above the employer match in a different type of account -- a health savings account. An HSA, or a savings account that pairs with a high-deductible health plan, is much more than just a carryover-eligible flexible spending account, or FSA. It's an employee's ticket to financial wellness leading up to and during retirement.

The benefit offers triple tax savings for employees -- funds can be saved pre-tax, earn tax-free interest and be withdrawn tax-free for qualified medical, dental and vision expenses at any time.

That last part is key. Unlike with a 401(k), where any funds withdrawn before age 59 œ come with a consequential 10 percent early withdrawal penalty, HSA funds can be withdrawn for qualified expenses without penalty at any time.

This is a crucial differentiator for employees, as it takes away some of the anxiety associated with determining how much to allocate to savings amid a life filled with unpredictable medical expenses. As an added bonus, HSA dollars can be invested in a variety of mutual fund options just like a 401(k) balance, so account funds can still be invested for exponential growth.

With all the benefits of a 401(k) and no withdrawal penalty, the HSA is a must-have choice for right-now and retirement savings. But offering an HSA with a high-deductible health plan is only the first step. Because many employees are still unfamiliar with the tax advantages associated with opening an HSA, employers pay a pivotal role in securing employee participation in the benefit. 

Four Keys to Increasing Participation

1. Provide education during open enrollment and beyond. The HSA is still new territory for many employees, and if they don't understand how they might benefit from enrolling, they could miss out on substantial savings. Take the time during open enrollment season to educate employees on their options, and -- given their likely unfamiliarity with the benefit -- be sure to spend a little extra time on the HSA. Even after open enrollment season has passed, ongoing education is important to making sure employees aren't just enrolled in the benefit, but they are maximizing their savings in the account.

2. Offer an employer contribution. Similar to a 401(k) match, an employer HSA contribution is a worthwhile investment that can significantly bolster employee satisfaction with an HSA. The return on your investment will be evidenced by the health and financial wellness of your employees.

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3. Pair it with a limited flexible spending account. Though employees are not eligible to participate in an HSA when already contributing a traditional FSA, the HSA can be paired with a limited-purpose FSA. A limited-purpose FSA allows employees to maximize their savings by getting reimbursed for out-of-pocket vision and dental expenses without tapping into their HSA cushion.

4. Choose the right administrator for the job. There are a variety of HSA administrators to choose from, but not all offer equal benefits. When choosing an administrator for your HSA offering, it's important to select one that will serve as an extension of your HR team by simplifying the process for your employees, saving you time for the other parts of your role. To really ensure you're making the best decision, look for an administrator that:

* Offers FDIC-insured accounts, so your employees will have peace of mind when investing their hard-earned dollars.

* Has experienced significant growth in its HSA assets, so you will have peace of mind in knowing their services will be around for years to come.

* Provides leading tools and technology such as claims synchronization and transparency tools, so the process is as simple as possible for your employees.

HR professionals understand that benefits are key to retaining the best talent. When selecting the best benefits and retirement package for your employees, don't overlook the HSA. With healthcare costs continuing to rise, it's a necessary part of the retirement equation. And unlike other retirement benefits, the HSA will provide value to your employees long before they've left the workforce.

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