Retirement plan sponsors are the first, and most important, line of defense in providing employees with well-managed retirement savings plans.
Employee Health & Wellness
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3 min read
Health savings accounts can be an attractive benefit for employees to use as a vehicle for saving money to cover medical expenses in retirement. However, your employees will only find value in this benefit if they understand how it works and how to leverage it as an effective, tax-sheltered, savings tool.
In this blog post, we’ll explain how your employees can get the most value out of their HSA; clear up some common misconceptions that lead to employees using their HSAs ineffectively; and give you tips for developing a communication strategy to help educate your employees about this benefit.
How an HSA Should Work
If your employees have a qualified high-deductible medical plan, they are able to open and contribute to a health savings account (HAS). Here’s how it works:
- Your employee sets aside pre-tax money in the HSA, up to a yearly maximum of $3,450 for yourself alone or $6,900 for a family. The government raises this limit a bit each year to keep pace with inflation.
- Your employee pays no tax on HSA money spent on IRS-qualified medical expenses. They’ll want to avoid paying anything other than qualified medical expenses with HSA funds, because those expenditures will be subject to a 20% penalty fee.
- HSA funds may be invested in traditional equities, such as stocks and bonds, to gain higher yields. Growth on invested funds is not taxed.
- Fund balances roll over year to year and remain in your employee’s possession, even if they switch to another type of medical plan that does not allow further HSA contributions.
If your employees contribute every year, invest their money in equities, and leave their accounts largely untouched before retirement, they will amass a large, tax-free fund to use for costly medical expenses in retirement and old age.
Why Many Employees Aren’t Using Their HSA to Maximum Effect
Unfortunately, many employees aren’t using their HSA in a way that gives them the maximum value for this benefit. An Employee Benefits Research Institute study recently indicated that most employees use their HSAs as “specialized checking accounts” for medical expenses throughout the year, such as deductibles, copayment and coinsurance, and prescription costs rather than saving for the future.
To get the most value from their HSA, employees should consider contributing the maximum amount to their HSAs to use for healthcare expenses—ideally in retirement. The option to reserve pre-tax money for expenses in the future could be a very valuable component of an employee’s retirement savings strategy.
Developing and Implementing an Effective Benefits Communication Strategy
Effective communication with your employee base can make the difference between a successful benefits plan and one that falls flat. Unfortunately, companies often fail to communicate the value of their programs so that employees are aware of their benefits and options within plans. Too often, companies limit their communication efforts to specific times of the year, like recruitment and onboarding, and fail to follow up with informational updates or changes to benefits plans, or useful information about wellness programs.
Your communication program should ensure that you keep your employees and their beneficiaries abreast of any changes that could impact their benefits, and explain confusing terms and features of the plans. It should also be tailored to your company and the people that make up your workforce. From employee demographics and geographic locations to internal resources and technology, taking the time to assess the factors that can influence your communication will help you develop an effective communication strategy.
A good place to start is by listening to your employees to determine how they prefer to be informed and then develop plans to leverage those preferred channels when creating communications.
For more tips on how to create an effective benefits communication strategy, check out these resources:
If you’re looking for a way to effectively communicate the features of your benefits plan, consider the tips and resources above. Or maybe, you’re in the market for an entirely new health insurance plan that could help you cut costs while offering your employees more robust coverage. Learn more about how to manage your employee benefits or request a consultation today.
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