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Health Savings Accounts

Record keepers take front seat on HSA bandwagon

Nationwide’s Hutch Schafer said HSAs ‘are a natural step’ in the focus on broader financial wellness.

As more defined contribution sponsors offer health savings accounts and more participants use them for medical care as well as investing, more record keepers want a piece of the action.

Nationwide Mutual Insurance Co. in October, Vanguard Group Inc. in November, Voya Financial Inc. in January and Massachusetts Mutual Life Insurance Co. in April each announced they will offer HSAs to their DC plan clients.

The newcomers — as well as Empower Retirement, which launched its HSA business about 20 months ago — have signed agreements with large HSA providers to administer the programs. Their strategies contrast with Fidelity Investments and Bank of America, record keepers that started offering HSAs in the previous decade and manage HSAs themselves.

"There's a need to engage in broader financial wellness, and HSAs are a natural step," said Hutch Schafer, vice president of business development for retirement plans at Nationwide, Columbus, Ohio., whose HSA was launched May 1.

Remarking that a holistic approach to retirement planning incorporates health care, Mr. Schafer said DC plan participants "need the most efficient solutions to save for paying for health care."

He echoed the comments of other record-keeping executives whose companies have signed up with an HSA administrator rather than build their own program. As Nationwide saw the HSA marketplace grow, executives realized that HSA administration "was not a core competence of ours," Mr. Schafer said. Nationwide's partner is HealthEquity Inc.

Voya Financial Inc. also chose an HSA partner in the name of efficiency. "We wanted to get into the market, and we learned that the best way to do this was through WEX Health Inc.," said Robert Grubka, the Minneapolis-based president of employee benefits for Voya Financial, referring to its HSA administrator. "WEX can handle the scale due to their expertise and skill in the market."

As MassMutual expanded its financial wellness efforts for its DC plan clients, it decided that hiring a partner — WEX Health — was the best strategy, said Tina Wilson, senior vice president and head of investment solutions innovation for MassMutual, Springfield, Mass.

"WEX Health is one of the largest infrastructure providers in the HSAs space," Ms. Wilson said. If her company tried to build from scratch, "it would be inefficient."

Needed some time

Record-keeping executives noted it required some time to assess the interests and needs of sponsors and participants as well as to determine the best way to achieve those goals.

"Using HSAs as a savings vehicle is better understood today than before, but there is still a long way to go," Mr. Grubka said.

"We heard from our clients that they were more interested in a fully integrated experience," said Martha King, managing director and head of the institutional investor group at Vanguard, Malvern, Pa., referring to the oft-stated theme that preparing for the future requires more than having a retirement plan.

Vanguard will introduce its HSA offering soon; the company didn't cite a starting date. Like its partner-preferring peers, Vanguard decided that HealthEquity offered the "highest quality and speed-to-market" opportunity vs. building its own HSA, Ms. King said.

HSAs are offered through high-deductible health plans. The accounts provide a triple tax advantage for workers who participate in the high-deductible health plans. Contributions are made with pretax dollars; investment gains within HSAs are tax free; and withdrawals from HSAs are tax free for qualified medical expenses.

The record keepers are competing in a market that, while growing, is still relatively small compared to overall DC assets.

By year-end 2018, total HSA assets were $53.8 billion, said Devenir Inc., a Minneapolis-based provider and researcher of HSA products. Devenir predicted total assets will climb to $64 billion by the end of 2019. By contrast, 401(k) plans had $7.5 trillion in assets as of year-end 2018, according to the Investment Company Institute.

Investments — as opposed to cash deposits — remain a minority of the total HSA assets. Last year, investments accounted for $10.2 billion, or 19%. By the end of 2019, Devenir predicted investments will rise to $13.6 billion, or 21% of HSA account assets.

Different approaches

The record keepers' approaches differ in their offering of investment options as well as in establishing rules for HSA investing.

For example, there's a variance on setting account thresholds for HSA participants before they can start investing.

The threshold for Empower Retirement is $2,000, said Kenneth Forsythe, head of product strategy for the Greenwood Village, Colo.-based record keeper. His company set this level because it wanted to make sure participants have enough money in the account to guard against unexpected medical expenses as well as against investment losses. "Very few of our clients ask for a lower threshold," said Mr. Forsythe, whose HSA administration partner is Optum Bank Inc.

Voya Financial began marketing its HSA program to clients in January and will offer the program to its employees in June. The HSA program has a $2,000 threshold. "We wanted to make it as reasonable as possible, balancing between medical expenses and investing," Mr. Grubka said.

For Vanguard, the typical threshold will be $1,000 to $2,000, subject to negotiation between sponsors and HealthEquity.

Record keepers also take varying approaches to investment lineups for HSAs. Even though the amount of assets in the HSAs are — or will be — small compared to assets in a sponsor's DC plan, many record keepers offer all or some institutionally priced mutual fund shares.

For HSA clients, Nationwide offers a target-date series and 11 other mutual funds with institutionally priced shares charging an average of 14 basis points, Mr. Schafer said. Nationwide offers open architecture; a balanced fund is its only proprietary product.

Vanguard will offer 17 proprietary funds plus a proprietary target-date series as a default investment lineup containing a mixture of institutional and retail shares.

Voya's HSA features investments selected by Voya Investment Management — a combination of a target-date series plus 19 mutual funds. The lineup includes proprietary and non-proprietary funds covering domestic and international equity as well as fixed income. The lineup also includes actively managed and index funds. Investment options are institutionally priced.

Empower's HSA uses funds selected by its HSA administrator, Optum Bank, which includes institutional share pricing "where possible," Mr. Forsythe said.

Proprietary tools

The record keepers' embrace of HSAs affords them opportunities to offer proprietary interactive tools to help participants determine the best ways to apportion their savings.

Principal Financial Inc., Des Moines, for example, announced a deal in January with HealthEquity to offer Principal's Retirement Wellness Planner, an interactive web-based program that lets participants link to other accounts to see their full financial picture.

In a few weeks, Principal will finalize a similar deal with Optum Bank, a Principal spokeswoman said. Employers who offer a Principal retirement plan and an HSA through HealthEquity or Optum Bank are eligible.

"The increased focus on HSAs is a recognition that we need a broader focus on retirement," said Gerald Patterson, senior vice president for retirement and income solutions at Principal.

"We want to make sure health care is part of your overall retirement planning process," Mr. Patterson said. "The lines between health and wealth are blurring together."

When MassMutual signed WEX Health as the administrator of its HSA offering, the company also made its MapMyFinances financial wellness tool available to HSA participants "to coordinate with all of the other benefits employers offer," Ms. Wilson said.

Introduced earlier this year, MapMyFinances is available to MassMutual record-keeping clients automatically at no cost. "We want to improve their financial wellness," Ms. Wilson said. "We need better education, better guidance and better tools."