Original Article Here: https://www.forbes.com/sites/forbesnonprofitcouncil/2018/06/18/how-to-guide-your-employees-towards-retirement-preparedness/
If your organization is like most employers, you offer a retirement program for your employees, but you are not likely measuring employee retirement readiness. A recent study conducted by Arthur J. Gallagher & Co. found that “while 78% of employers offer a retirement program, only 37% take steps to measure employee retirement readiness.”
Today, retirement readiness not only includes savings needed to meet daily living expenses but also preparations for the expenses of rising medical costs. Unlike earlier generations, most workers retiring now and in the future will not have an employer-sponsored health plan to help them absorb healthcare costs not covered by Medicare.
According to research by the Employee Benefit Research Institute, some couples may need $370,000 for medical expenses during retirement. Yet, only a small fraction of the population has prepared and saved money. In fact, recent research by the National Institute on Retirement Security shows that, of working millennials, 66% do not have retirement savings.
Investing In Your Organization
Traditional savings vehicles such as 401(k)s, IRAs and taxable investment accounts provide employees with savings options for meeting general retirement spending needs. However, there is a tax-preferred savings vehicle that is specifically designed to save for medical expenses that occur during working years as well as in retirement. It is a health savings account (HSA).
An HSA can be an essential part of your organization’s benefits package, offering many advantages to employees. You may consider offering employees an HSA paired with a qualified high-deductible health plan (HDHP) as an attractive alternative to typical high-premium coverage and as an enhanced retirement program. Using the premiums saved from an HDHP, your organization may even help fund your employees’ HSAs.
With an HSA, you and your employees can make contributions up to a certain limit each year through pre-tax payroll deductions or direct tax-deductible contributions. The interest an HSA earns is not taxed as long as the money is used for qualified medical expenses; withdrawals are not taxed even after the account holder has retired and is receiving Medicare.
One feature of an HSA that many overlook is that money in the account can be accumulated and put to work in an investment account offered by most HSA custodians. A wide array of stocks, bonds and mutual funds are generally available through such a brokerage account. These offerings are beneficial for those wanting to establish a secure retirement. However, the 2018 WEXHealth Clear Insights Report (registration required) found that “more than half of the workers surveyed (54%) were not aware that they could invest their HSA funds in stocks, mutual funds and other investment vehicles. And, three-quarters of respondents see their HSA as a way to pay for healthcare expenses this year, which indicates they may not even be aware that HSA funds can be carried over into the next year.”
Educating Your Employees
There is a significant opportunity for employers that offer HSAs to do more to educate their employees on the triple tax advantages of the HSA and the ability to use this vehicle to significantly enhance their retirement preparedness. As the executive director of the Employers Council on Flexible Compensation, I often coach fellow executives across industries on the importance of understanding the benefits themselves and providing thorough education to their employees.
The HSA triple tax advantage is this: Contributions to HSAs are pre-tax. The funds grow on a tax-deferred basis, and withdrawals are not taxed when they are used toward qualified medical expenses. Pre-tax HSA contributions also avoid Federal Insurance Contributions Act (FICA) taxes, saving money for both employees and employers.
Karin Rettger, president of Principal Resource Group, gave the following example at the Plan Sponsor Council of America’s 71st Annual National Conference: “If you save $3,450 per year — the current maximum for single-coverage — in an HSA over 25 years, assuming a 5% rate of return, you would have $170,000.”
There are many resources available to employers who wish to help their employees make the best use of their HSAs, starting with the Internal Revenue Service (IRS) Health Savings Account at a Glance, which contains links to official tax forms and answers to tax-related questions. Next, an internet search of “HSA” will lead to a plethora of news articles and publications that can be shared with employees.
Sharing information about HSAs with employees throughout the year is an effective way to remind them that HSAs can be started and funded anytime during the year, not just during open enrollment periods. Finally, ask your benefits advisor for help. Many advisors will gladly come on site to work with your employees and show them how to use the various planning tools that most HSA custodians make available to their clients to help them maximize the benefits of the plan.
Assessing the retirement readiness — the financial ability to retire and maintain the same standard of living — of your workforce is one of the most important ways your organization can ensure its well-being. And in today’s environment, maintaining a current standard of living also includes providing for healthcare.
When organizations make an effort to educate employees about the saving and investment features of an HSA, benefits packages can instantly take on a significant role in better preparing employees for a secure retirement. At the same time, the organization becomes stronger by fostering sound workplace planning that allows for more predictable staff transitions.