According to Fidelity, a strategy being proven effective by many employers involves offering a high-deductible health plan together with an HSA, along with a defined contribution (DC) plan, as an integrated benefit offering. This enables a broader view into employee savings opportunities and behaviors, thus helping employers further a “culture of savings” in the workplace.
For the past two years, Fidelity has analyzed the savings behaviors of employees who save in both an HSA and DC plan. They found that on average, these employees tend to save more of their annual salaries in their DC accounts than those employees with just the DC plan alone.
According to the 2012 Fidelity Retiree Health Care Cost Estimate, the average couple will need about $240,000 to cover the costs of health care in retirement. Saving in an HSA provides employees with an efficient and tax-advantaged way to help prepare for these costs. HSA contributions, investment earnings, and distributions used to pay for qualified medical expenses are not subject to federal taxes. Unlike health flexible spending accounts, these balances can be rolled over year to year and be invested to pay for qualified medical expenses in the future, including in retirement.
On average, those with HSAs through Fidelity had contributions of $2,380 made to their accounts in 2012, which included money from both the employer and employee. The annual HSA contribution limit set by the Internal Revenue Service increased this year to $3,250 for individuals, up from $3,150 in 2012, and $6,450 for families, up from $6,250. Those age 55 or older can save an additional $1,000 per year in catch-up contributions, similar to some tax-advantaged retirement accounts such as 401(k)s or Individual Retirement Accounts (IRAs).
“Employer benefit plans and savings programs that include financial education to employees at all stages of their careers are helping to drive smarter savings decisions by employees,” said James M. MacDonald, president, Workplace Investing, Fidelity Investments. “The long-term impact of these decisions is now more important than ever as expenses in retirement, such as health care costs, continue to grow.”