Ryan Tiernan speaks with PLANADVISER
about health savings accounts (HSAs) and
the opportunities for advisers to work with
PLANADVISER: With both employers and
employees often contributing to a health
savings account, how does that affect the
makeup of the account over time?
RYAN TIERNAN: Roughly 75% of employees
who have an HSA receive an employer
contribution; add that to what employees are
contributing, and these balances continue to
grow. Today, the average balance is roughly
$2,000, but when we look at the longer
standing accounts and those accounts
taking advantage of investment capabilities,
those balances average closer to $15,000.
It’s important to talk about HSAs because
advisers are looking to help their clients
retire on time and on their own terms. The
expense of health care in retirement is a
critical part of that conversation. It has been
estimated that an average 65-year-old retired
couple will need $275,000 for out-of-pocket
health care expenses. So, then the question
becomes: how do you most efficiently save
and invest for that? As their HSA balances
grow, people are turning more attention to
the investment capability as a means to build
health care–specific retirement income.
Initially, our biggest hurdle may be
education: helping employers and
employees understand how HSAs work,
from onboarding of the high-deduct-ible health plan [HDHP] with the HSA, to
growing a balance, to then surmounting,
perhaps, the minimum deductible or
PA: Not all strategies work for every
employee at a company, but which
employee might consider using an HSA for
long-term wealth accumulation?
TIERNAN: We often think about this as a
barbell. In the employee population today,
we see two groups, in particular, who would
benefit from exploring the topic: Millennials
and highly compensated employees [HCEs].
The HCEs often have much higher take-home income, could experience some kind
of corrective distribution or, because of their
income, don’t qualify for a Roth or some tax-
Vice President, National Accounts,
American Funds® from Capital Group
MOVERS & SHAKERS
preferred individual retirement account [IRA].
They also often max out their 401(k) up to
the 415(c) limit, so the HSA can be tremendously valuable for them. They can fund
the account, and then leave that money to
compound via investments.
With Millennials, you have a group of
people who are, on average, very healthy,
are most often getting an employer contribution, and they have, typically, 40 years
until their retirement. They can capitalize
on this triple-tax-free vehicle, with both
their dollars and their employer’s. The fact
that the HSA is portable is also a reason we
see many Millennials adopting the HDHP/
PA: As an account holder approaches a
stated investment threshold, how might
s/he invest the contents of their HSA?
TIERNAN: Taking those two populations
again, we think mutual funds can play a critical role — risk-based balanced funds and, in
particular, target-date funds [ TDFs].
Often, people don’t retire when they
expect to. However, we all have important,
specific dates we can count on: when we
turn 65 and become Medicare eligible, when
we turn 70.5 and have to start taking required
minimum distributions [RMDs]. Therefore,
we think target-date funds could play a
significant role in HSAs for long-term retirement income planning because at 65, most
Americans will become eligible for Medicare.
While many folks believe Medicare will cover
all their health care expenses, unfortunately,
that just isn’t the case.
PA: Finally, how can advisers incorporate
information and services about HSAs into
their best practices and even their statements of service?
TIERNAN: HSA vendor search and selec-
tion is something few advisers do, but
the attributes their clients look for when
selecting their HSA provider are often very
similar. Defined contribution [DC] advisers
are very familiar with provider character-
istics like investment capability and over-
sight, investment education, and educa-
tion at the employee level. To the extent
advisers encompass these things in their
statements of service, and deliver that
experience, they can transcend the primary
role of 401(k) adviser and become a trusted
consultant with a broader perspective on
One best practice is to collaborate with
other professionals in what we call the
“benefits mosaic.” There is a tremendous
opportunity for DC advisers to work together
with health benefit advisers and brokers.
Each then contributes from his or her area
One example of this collaboration would
be advisers helping both the employer and
benefit broker explore which HSA investments best suit a particular plan population.
To that end, our target-date fund analyzer—
American Funds Target Date ProView®—is a
fantastic tool for comparing a host of target-date funds. An adviser’s ability to share such
information with both sponsors and benefit
advisers is yet another way to demonstrate
their experience and reach within the corporate benefits package. n
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Statements attributed to an individual
represent the opinions of that individual as
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reflect the opinions of Capital Group or its
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highlight issues and not to be comprehensive or to provide advice.
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