When it comes to traditional retirement accounts such as 401(k)s and IRAs, employers or service providers often urge participants to consolidate assets in multiple accounts via a rollover. But it appears that advice isn't prevalent when it comes to health savings accounts, an up-and-coming retirement savings vehicle, which could have negative consequences for savers.
"Right now, you see people asking for IRA and 401(k) rollovers," said Jack Towarnicky, executive director of the Plan Sponsor Council of America, a trade group for companies that sponsor retirement plans. "We're not at that point yet when it comes to HSAs, and probably won't get there for many years to come."
Only one in five employers offering a health savings account (meaning they have a high-deductible health plan) solicits rollovers from newly hired employees, who may have an HSA from a prior employer, according to a new PSCA report on health savings accounts.
That means the vast majority of companies don't actively approach new hires about rolling over assets to their new HSA and they may not accept rollovers at all. Both could contribute to employees having several HSA accounts, which would have negative consequences.
For one, most HSA vendors require participants to hold a minimum amount of assets in a bank-like account — maybe $1,000 or a few thousand dollars — before they're able to invest the money, something most financial advisers advocate so that assets can grow over the long term to cover future medical expenses. According to Fidelity Investments, a 65-year-old couple retiring in 2019 can expect to spend $285,000 in health and medical expenses throughout retirement.
Having multiple HSAs rather than one consolidated account makes it more likely that participants won't have enough money in each account to meet these investment minimums. It also increases the chance that an employee will forget about an account.
In addition, while many employers pay HSA administration fees for active employees, most don't continue to do so after workers leave the company. That means employees leaving behind idle accounts will have their savings eaten up by fees.
Roughly 60% of employers pay the HSA maintenance fees for employees, but only 5% also cover those costs for former employees, according to the PSCA report.
"I do believe there isn't much focus on accepting rollovers. That's an area where the HSA trustees need to be more aggressive," Mr. Towarnicky said. "I just don't think it's a priority right now because of the small account balances."
HSAs have been growing in popularity — the total number of HSAs at the end of 2018 was up 13% over the year prior, to 25 million accounts, according to Devenir Research, a consulting firm. Total assets of $53.8 billion were up 19% over the same period, and Devenir expects that number to swell to $75 billion by the end of 2020.
However, account balances remain relatively small — the average account balance at the end of 2018 was $5,239, according to the PSCA.
Aaron Pottichen, a financial adviser, hasn't come across an HSA that doesn't allow for rollovers, but does see communication issues among employers with respect to HSAs.
More than three-quarters of employers educate their employees about HSAs just once a year, during open enrollment.
Communication around rollovers could be simple — for example, notifying participants that they can roll over their HSA assets and providing the appropriate form, a link or a number to call, Mr. Towarnicky said.