A growing number of plan advisors are salivating over the next big thing: being able to have not only retirement assets under management, but also all the assets that their clients’ employees might set aside in health savings accounts (HSAs).
This comes at a time when your clients are really thinking of putting HSAs in place for their employees.
In 2018, an individual can generally contribute a maximum of $6,900 to an HSA. Statistics published by EBRI in November 2016 indicated that in 2015, there were $28 billion in total HSA assets. With their increased popularity, HSA assets continue to mushroom, and certainly it is obvious why a plan advisor who already oversees the assets of a client’s retirement plan might want a piece of the action (see 7 Reasons Why HSAs Are ‘Hot’).
HSA participants have the ability to invest those HSA funds (with you and on your recommendation!), leaving aside some cash to address health expenses. In fact, given the tax deductibility of an HSA contribution, tax-free growth on HSA investments and tax-free withdrawals for qualifying health expenses (and, after age 65, the employee can withdraw from an HSA for any purpose), some HSA participants are instead using these accounts as yet another tax-favored retirement vehicle, choosing to pay their health expenses out of pocket.
However, before you rush to urge your clients to offer HSAs, there are layered complexities to understand. Remember that an HSA must be paired with a high deductible health plan (HDHP). A plan advisor who doesn’t already have a relationship with a health plan advisor should get very familiar with HSAs’ quirks, of which there are many. Here are two of them:
- Employees who are on Medicare or Tricare cannot have an HSA. Thus, a plan advisor should not oversell the HSA idea without understanding the client’s demographics. With certain employees prohibited from having HSAs, an alternate health plan arrangement must be available to them.
- Some employers want to contain health care costs, so they want to offer onsite clinics to assist their employees. Your clients with onsite health clinics must be careful when setting up HDHPs paired with HSAs. I recently blogged about this creative savings strategy, but noted some issues to navigate, here.
While HSAs mean millions, if not billions, of dollars to add to a plan advisor’s assets under management, a plan advisor should reject just “selling” the HSA strategy to clients. A more informed approach to navigate the compliance waters would be of more help to those clients before setting up HSAs for their employees.
Jewell Lim Esposito is a partner at the law firm FisherBroyles, LLC. She has 25 years of experience in ERISA and employee benefit taxation, specializing in ERISA Title I and Title II matters. This is Jewell’s first column for NAPA Net. She can be reached at firstname.lastname@example.org.