HSAs as a Part of the Retirement Planning Process

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1 HSAs as a Part of the Retirement Planning Process Scott Betts, QKA, TGPC, CFCI Vice President DMBA Greg Fowler, ERPA, CPFA, AIF, QPA Senior Vice President, Retirement National Benefit Services, LLC

2 Learning Objectives Learn the basics of HSAs and HDHPs What to tell clients about HSAs How to utilize this HSA knowledge to create new business opportunities

3 Poll Question MC Question: Do you personally have an HSA right now? Yes No

4 Poll Question MC Question: How long have you had your HSA? Less than 1 year 1-3 years 4-8 years Greater than 8 years

5 Poll Question MC Question: Do you have your HSA invested in the market? Yes No

6 The Basics - HDHPs High Deductible Health Plan (HDHP) defined by the IRS 2017 Self-Only Coverage Family Coverage Minimum Annual Deductible $1,300 $2,600 Maximum Annual Deductible & Other Out-of-Pocket Expenses $6,550 $13,100

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8 Basics - HSAs Health Savings Accounts created by the Medicare Modernization Act of 2003

9 Eligibility to Open & Contribute to an HSA Must be covered under an HSA-qualified HDHP on the first day of the month in which you open an HSA or make a contribution to an HSA (IRC. Sec. 223(s)(1)(A)(i)) Must have no other health coverage, unless permitted under IRS guidelines (IRC. Sec. 223(s)(1)(A)(ii)) Must not be enrolled in Medicare (IRC. Sec. 223(b)(7)) Cannot be claimed as a dependent on someone else s tax return (IRC. Sec. 223(b)(6))

10 HSA Tax Benefits Contributions are TAX DEDUCTIBLE Earnings and interest grow TAX DEFERRED Withdrawals for eligible medical expenses are TAX FREE

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13 HSA Contribution Limits CY 2017 CY 2018 Individual Coverage $3,400 $3,450 Family Coverage $6,750 $6,900 Catch-Up Contribution (ages 55+) $1,000 $1,000

14 Other Contribution Factors Transfers/rollovers from other tax-advantaged accounts No joint Spouse HSA accounts DRO can split account One family coverage limit if spouses under different plan If both spouses are age 55+ two separate catch-up contributions can be made ($2,000) Excess contributions subject to an excise tax

15 HSA Contributions Who can contribute to your HSA? You and Anyone: Employer, Family Member, State Government. Who gets the tax break for the contribution? Only you and your employer. Others who contribute to your account are unable to take the deduction. All contributions to your HSA account, no matter the source, are tax-free to you. (IRS Notice ) Employer contributions are not subject to employment taxes. Earned income credit (EIC) is not affected by employer contributions. The HSA account holder owns all contributions. Contributions cannot be taken by the employer or its creditors. All money roles from year to year and you take it with you when you leave the employer. Can start and stop HSA contributions at any time

16 ERISA HSA Exemption Requirements DOL FAB : Most HSA s are exempt from ERISA if establishment of the HSA is completely voluntary on the part of the employees

17 ERISA HSA Exemption Requirements Employer must NOT: Limit the ability of eligible individuals to move their funds to another HSA Impose conditions on utilization of HSA funds beyond the Code Make or influence the investment decisions with respect to funds contributed to an HSA Benefit financially from the HSA receive payment or compensation in connection with an HSA Represent that the HSAs are an employee welfare benefit plan established or maintained by the employer make or influence the employee s investment choices

18 ERISA HSA Exemption Requirements Employer May: Establish an HSA for an employee (as long as the employee can move funds to another HSA) Limit the HSA providers to which it will make or transfer contributions as long as the employer does not endorse an HSA provider

19 Benefits of an HSA Under a Cafeteria Plan Through a Cafeteria Plan document the employer can have employer contributions through matching. Similar to a 401(k) plan match. Comparability rules do not apply to contributions made through a Cafeteria Plan (self-only or family coverage is the same category)

20 Coordinating HSAs with 401(k)s Employer may offer the same or similar investments through its HSA program (even an ERISA-exempt program) as those it offers to its 401(k) if per FAB Employees are afforded reasonable choice of investment options Employees are not limited in moving their funds to another HSA Segregation of assets - neither plan s assets are used to benefit the other

21 Why HSAs Matter Rising healthcare costs Employers continue to shift cost to employees Healthcare costs impact retirement savings Investment Opportunity for longer-term healthcare costs

22 HSAs By the Numbers $37 billion total assets $260,000 - $350,000 amount needed in retirement to cover healthcare costs 24% of firms with healthcare benefits offer an HSA 15% of HSA assets are invested HSA enrollment increased from 17-29% over the last five years

23 Group Plan vs. Individual Accts and Orphan Accts Group 401(k)/403(b) Individual HSAs Orphan HSAs HSA Terminated Employee HSA No minimum force out rules Administration Fees Account/Fee Erosion If Non-ERISA the custodian must forward regular reports of unclaimed property to the state HSA

24 Retirement Savings Account Market Assets HSA $37B Deposits $31.5B Investments $5.5B Retirement Plans $13.6T DC Plans $6.7T IRA $6.9T Roth $580B Traditional $1.8T DC/DB Plan Rollover $4.5T

25 Money Movement DC Plans IRA Accounts $400B Rolls Each Year From DC to IRA

26 DC Plans The Shift - $4.5 Trillion Spent on Medical IRA Accounts

27 The Shift Contribution Dollars 401k IRA Shift in Deferral HSA

28 Growth Trend DC Plans IRAs It took more than 10 years for 401(k)s to gain the same percentage of market share that HSAs have now. HSAs

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30 HSA Strategies Expand Retirement Readiness picture to include healthcare costs and HSA balances Shoebox method

31 Individual HSA Strategy Reduce taxes by maxing out HSA Contribute via payroll deduction to save 7.65% on FICA taxes Invest HSA balance in low cost mutual funds Use HSA like a Traditional IRA after age 65 Save medical receipts and withdraw from HSA, when necessary Pay medical costs out of pocket leave HSA to grow, tax-free

32 HSA Behaviors Educate participants on coordination of benefits between 401(k) and HSA Save in the HSA up to the deductible and out-ofpocket costs Save up to the 401(k) match Save in the HSA up to the contribution limit Save in the 401(k) plan beyond the match

33 Health Savings Accounts HSA/FSA/Investment System Architecture

34 HSA Components HSA Custodian Bank or Non-Bank Custodian HSA Record Keeper traditionally a part of the custodian HSA Investment Platform HSA Investment Record Keeper Debit Card Provider FSA/Limited FSA Administration Claim/EOB/Co-Insurance Integration Market Options Avidia Bank, Bancorp, Health Care Bank, HealthEquity, Optum Bank, UMB Bank, Alegeus, IPX Schwab RT, Proprietary Devenir (Independent), IPX, TPA s FDR, FIS, TSYS Alegeus, HealthEquity, WEX Alegeus, HealthEquity, Optum, WEX

35 HSA Components Investments Trading Platform Front End Investment Record Keeper Web Portal Mobile Application Bank Custodian Custodial Rerecord Keeper Card Provider Administration Backend

36 Most Common HSA Structure Investments Trading Platform HSA Investment and Recordkeeping Components HSA Custodial and Administration Recordkeeping Components Investment Front End SSO Front End Web Portal Mobile Application Investment Record Keeper Bank Custodian Custodial Rerecord Keeper Administration Backend Card Provider

37 401(k) and HSA 401(k) Investments Trade HSA Investments Trade Two Investment Line-ups 401(k) Record Keeper HSA Record Keeper Two Portals 401(k) Administration Bank Custodian HSA/FSA Rerecord Keeper Card Provider HSA/FSA Administration

38 Desired State Front End 401(k) Investments HSA Investments HSA Custodian Bank FSA/Limited FSA Balance Investments 401(k)/ /HSA Trading Partner Record Keeper 401(k)/HSA Full Mobile Application Bank Custodian Custodial Record Keeper Card Provider 401k/ /HSA/FSA Administration

39 Visible On the Horizon HSA Retirement Plan Administration IRA/HSA Administration Investment Record Keeping

40 Additional Options HSA / 401(k) Side Car Solution Deemed IRA

41 Wrap Up HSA Market Administration Future - opportunities