Employees enrolling in health savings accounts, 401(k)s more than ever: report

BofA study finds auto enrollment plans helping a lot but workers, particularly younger ones, are more confident as the financial crisis continues to fade

Dec 10, 2015 @ 7:00 am

By Laura Sanicola

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More than ever, employees — specifically younger ones — are looking to enroll in workplace benefit plans, specifically 401(k) plans and health savings accounts, according to a report from Bank of America Merrill Lynch.

“We see companies shifting to a model that allows employees to be much more involved in health care expenditures and be able to save for health care in retirement,” said Steve Ulian, managing director at Bank of America.

In the first half of 2015, 44% more employees enrolled for the first time in their employer's 401(k) plan compared with the same period a year ago.

“The results tell us that people have more confidence as the recovery has taken hold, and are engaging in financial benefit programs,” Mr. Ulian said.

But automatic enrollment programs could be at the root of increased enrollment. The BofA study found almost half of employer plans now use automatic enrollment and another 36% use automatic increases for 401(k) plan employee contributions. Seventy-eight percent of plans that use automatic enrollment programs also use automatic increase, an increase of 40% over the first six months of 2014.

ROTH GAINS

Roth accounts also saw a notable increase during this time period, with a 21% increase in the total number of contributors and a 20% increase in the average contribution over the same six months in 2014.

Perhaps most notably, enrollment in HSAs surged 42% compared with the same period last year.

A health savings account can serve as an important vehicle for individuals to accumulate tax advantaged savings over a number of years. Experts at Nationwide and Fidelity agreed with Mr. Ulian that one of the greatest benefits of HSAs is their triple-tax advantage: money isn't taxed going in, as assets accumulate, or coming out as long as it is used for health costs.

(More: Don't shrug off health care conversations with clients)

While some find HSAs underutilized by employers, Mr. Ulian said the accounts' growth can be attributed in part by the fact that they are relatively young.

“If it's a nine-inning game — in terms of people learning the value and benefit of HSAs — we are probably in the fifth inning,” he said. “They have only been around 8-10 years in any meaningful way.”

HSAs appear to be particularly attractive to the younger generation, who are proving eager to enroll. Millennials now account for 33% of overall HSA enrollment, up from 9% in 2010.

CONFUSION

Despite the uptick in employee enrollment, recent statistics show there is still room for improvement. An October study from MassMutual found that nearly four in 10 Americans report knowing little or nothing about their employer-provided benefits such as health care and life insurance.

This, Mr. Ulian says, is being counteracted by an increased willingness on the part of employers to engage in the financial well-being of their clients. While some employers may still be acting on a “paternalistic” desire to help employees with their financial health, he finds that they are looking out for themselves as well.

“They are starting to realize that in a 5% unemployment rate environment, there is a need to retain your best skilled people and a need to recruit new ones,” he said.

This semiannual report reveals trends in the behaviors of 2.6 million employees at companies with financial benefit plans serviced by Bank of America Merrill Lynch.

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