Choosing an HSA provider might seem simple: look for a company with industry experience, a solid mutual fund lineup, and reasonable fees. A closer look, however, reveals that not all HSA plans are created equal.
More Than Meets the Eye
Many employers unknowingly default to a basic HSA setup, meaning one that simply deducts contributions from paychecks and deposits them into a low-yield account. While this approach covers immediate healthcare expenses, it doesn’t take full advantage of what an HSA can offer.
Contrary to popular belief, a well-designed HSA isn’t just a place to park money, it’s financial tool that should provide employees with robust investment options, automated savings strategies, and an avenue for financial education. Without these features, employees may miss out on meaningful wealth-building opportunities.
The Untapped Potential of HSA Investments
There are clear benefits of investing within an HSA, but most employees don’t take advantage of them. The 2024 Midyear Devenir HSA Research Report found that only 9% of HSA holders have money invested in mutual funds. This leaves 91% of HSA assets sitting in low-interest bank accounts, representing a massive missed opportunity for long-term financial growth.
So, how can you tap into this potential? By selecting an HSA provider that simplifies investment access and encourages better savings habits.
Lesser-Known Features That Make a Difference
A strong HSA plan should include:
- Automatic asset allocation for new payroll contributions: Unlike 401(k) plans, where employees can pre-set how new contributions are invested, HSA providers often require contributions to be deposited into a cash account first, which means employees have to manually move funds into investments.
It shouldn’t come as a shock: most employees won’t take the time to log in, research investment choices, and move money into long-term assets. As a result, funds that could be growing for future healthcare needs remain in simple savings accounts.
A provider that offers automatic investment allocation removes this barrier, making it easier for employees to increase financial assets while still keeping cash readily available for short-term medical expenses.
- A customizable investment lineup that aligns with your 401(k) plan: Choosing the right investments is most likely challenging for many employees. Aligning the investment options in your HSA with those in your 401(k) can create a seamless experience, simplifying financial planning.
While HSAs don’t fall under the same ERISA regulations as 401(k) plans, they can be structured to mimic the investment lineup of your existing retirement plan.[1] This allows employees to choose from a set of pre-qualified mutual funds they already understand.
Are Your Employees Maximizing Their HSA Benefits?
If your workforce is financially savvy and actively managing their investments, a basic HSA provider might suffice. But if your employees could benefit from guidance, automation, and ease of use, then evaluating providers who go beyond the basics may be a worthwhile exercise.
Taking the time to select the right HSA provider can help employees build wealth, reduce stress, and secure their financial future all while enhancing your company’s benefits package. Investing in a well-designed HSA isn’t just about compliance or convenience. It’s about empowering your workforce with the right tools to thrive. [1] See DOL Field Assistance Bulletin 2006-02, which allows employers to match the investment options available in their employer’s 401(k) plan. The DOL guidance does not treat an employer as making or influencing investment decisions if the HSA provider selected investment options that mirrors the options of the employer’s 401(k) plan.
