Record keeper Empower jumps into HSA market, as Fidelity expands

Some view an enhanced participant experience as the "next battleground" for retirement plan record keepers

Mar 28, 2017 @ 1:25 pm

By Greg Iacurci

Two of the largest retirement plan record keepers, Empower Retirement and Fidelity Investments, are growing their health-savings-account businesses, at a time when such accounts are becoming more popular and providers are feeling the pressure to compete on offering participants more holistic financial services.

Empower on Tuesday announced a partnership with the company Optum, a health-plan administrator, to offer HSAs to the retirement provider's clients beginning this summer.

Participants with such accounts will be able to view their 401(k) and HSA balances in one online portal, and receive some financial-planning guidance around the funding of their retirement and health accounts, said Ed Murphy, the president of Empower Retirement, which administers $475 billion in retirement plan assets.

Fidelity, the largest record keeper of defined-contribution plans, already offers an integrated portal to view health and retirement balances, but only to its largest clients – those with more than 2,000 benefits-eligible participants.

Later this year, at an unspecified time, Fidelity will "begin offering HSAs to select employers with greater than 50 employees," Eric Dowley, senior vice president of Fidelity's HSA business, said.

As of Jan. 31, Fidelity offered HSAs to more than 250 employers and 657,000 individual account holders.

"The silos between retirement and medical benefits are quickly coming down," said Aaron Pottichen, retirement services practice leader at CLS Partners, an Austin, Texas-based financial advisory firm. "The path forward is an environment where benefits and retirement are looked at as a package and employers want it to be delivered that way."

Health savings account assets have grown steadily over the past couple years. Assets grew 22% year-on-year to $37 billion in 2016, and the number of accounts grew 20% to 20 million, according to Devenir Group.

While assets pale in comparison to the roughly $7 trillion in DC plans, industry observers expect HSAs to become more popular, especially if Republicans are successful in their quest to repeal and replace the Affordable Care Act, also known as Obamacare.

Brian Graff, executive director of the National Association of Plan Advisors, the largest trade group for retirement plan advisers, said March 19 at the group's annual conference that the HSA market would "blow up" if the recent health bill being weighed in the House of Republicans – the American Health Care Act – ultimately passed.

That bill, which House Republicans pulled back on Friday after realizing the bill didn't have enough support to pass the chamber, would have doubled HSA contribution limits.

Even without the bill, though, Empower's Mr. Murphy believes "the shift toward a more consumer-driven [health] system is here."

At the same time HSAs are becoming more popular, 401(k) record keepers are being pressured to improve their level of participant engagement and offer a more holistic view of their finances and investing, said Neil Bathon, managing partner of FUSE Research Network.

The "overarching trend," he said, is to integrate 401(k), HSA, individual retirement account and non-retirement-plan assets, for example.

"I think this is where the next battleground is," Mr. Bathon said. "Overall, the investment in technology to be competitive in [delivering] the participant experience is going to be hard for the smaller and midsized record keepers to keep up with."

Mr. Murphy, echoing that sentiment, said "retirement, health care and wealth management are all converging."

The integrated 401(k)-HSA service will be available to all Empower clients with a high-deductible health plan. The first phase of the service will include two fund types – a "cash management" option for short-term qualified medical expenses, and a "diversified" growth-oriented fund participants can invest in after they rack up enough funds in the cash account, Mr. Murphy said.

The second phase, which is Empower is targeting for the fall of 2017, will offer plans the option of "investment mirroring," which would allow parity between 401(k) and HSA investments, Mr. Murphy said.

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