DC participants with 401(k)s and HSAs have higher savings rates for 401(k) and overall

Report data contradicts sponsors' fears of HSAs cannibalizing 401(k) savings

Feb 8, 2018 @ 12:32 pm

By InvestmentNews

Defined contribution plan participants who are eligible to participate in 401(k) plans and health savings accounts save more than people who just use 401(k) plans, according to research by Alight Solutions.

"These people are proactively saving," said Robert Austin, director of research, in an interview Wednesday. "These people understand these are good savings mechanisms."

An Alight research report issued Tuesday showed that participants using 401(k) plans and HSAs had higher aggregate savings rates than those using just 401(k). More notably, it showed that the 401(k) savers who also contributed to HSAs had higher 401(k) savings rates than those just using 401(k) plans.

For example, Alight found that the savings rate for participants using a 401(k) plan in conjunction with an HSA had an average 401(k) savings rate of 8.9% plus another 2.9% for the HSA. By contrast, the savings rate for 401(k)-only participants was 6.8%.

"The data shows that the apprehension (by sponsors) that HSAs will cannibalize 401(k) savings doesn't hold," Mr. Austin said. "Don't let fear be a deterrent to putting in an HSA. Don't worry about one getting in the way of the other."

The Alight data, based on a survey of 34 clients with 1.1 million participants, showed that the higher 401(k) savings rates among participants also saving via an HSA vs. the 401(k)-only group held true at all salary levels. Alight looked at five salary categories ranging from a low of $20,000-$40,000 to $100,000-$250,000.

The Alight report also said "pay is the key driver" for participants using 401(k) plans and HSAs. In the $100,000-$250,000 group, for example, 80% used both. In the $20,000-$40,000 group, 48% used both.

"Lower paid workers are less likely to enroll in an HSA-eligible health-care plan," the report said, noting that 44% of workers earning below $60,000 were enrolled in such a plan. Fifty-three percent of workers earning at least $60,000 were enrolled in this type of plan.

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