Employer contributions rise, unfunded HSAs fall

The latest Devenir HSA market research shows employers continuing to drive strong HSA growth through contributions to employee accounts.

In January 2021, 34% of HSAs received an employer contribution, with employer contributions representing 60% of all incoming HSA funds throughout the month. The average employer contribution checked in at $502.

Unsurprisingly, as the number of HSAs receiving employer contributions rose, the number of unfunded HSAs fell, with fewer than 18% of all HSAs being unfunded by the end of January 2021.

HSA contributions outpacing withdrawals and impacting the 401(k) landscape

On the employee side, HSA contribution growth continues to outpace withdrawals. Despite the pandemic, accountholders contributed nearly $42 billion to their HSAs in 2020—an 8% increase over 2019. Of that $42 billion in contributions, only around $30 billion was withdrawn.

The uptick in contributions signals employees' growing interest in, and commitment to, HSA investing.

As the understanding of an HSA's triple tax advantage continues to grow, employees of all kinds are shifting focus from spending to saving and choosing to harness the power of tax-free contributions, investment returns and HSA-eligible expenses beyond the 12-month cycle. Instead, they're taking advantage of their HSA as a long-term retirement saving tool.

The Devenir data confirms the HSA investment trend. HSA investment asset growth rose 52% from 2019 to 2020, and there are now around 1.7 million accountholders investing a portion of their HSA funds.

But the funds for increased HSA contributions and investments have to come from somewhere. And for many employees, they're increasing their HSA contributions by decreasing their 401(k) contributions.

A recently published report from the Employee Benefit Research Institute found that more than 50% of employees with 401(k)s reduced their 401(k) contributions the first year they opened and began contributing to an HSA.

EBRI's report also detailed the direct link an employer HSA contribution or match had on not only HSA program participation but also employee contributions. Employers who offered HSA contributions or matches saw markedly higher HSA program buy-in from their employees, along with more employee HSA contributions. However, on the flip side, they saw lower 401(k) contributions from the same employees.

Some employers are restructuring their benefit offerings and shifting focus from employer 401(k) contributions and matches to HSA contributions. Fortunately, the two accounts don't have to compete, and savvy employers can use both accounts together to maximize cost savings on their end while providing even more well-rounded, attractive benefit offerings to their employees. Because for most employees, having the ability to take advantage of and fund both accounts is better than having to choose between the two.

Employer HSA contributions pay dividends in employee buy-in, FICA tax savings and more

Impact to employee 401(k) contributions aside, employer HSA contributions directly drive employee engagement, boost employee HSA contributions and ultimately net more FICA tax savings for both employers and employees.

Choosing to contribute to employee HSAs strengthens any employer-sponsored HSA program and enriches any overall benefit offering. Even small contributions can have huge impacts on recruitment and retention, while serving to create a more motivated, productive, happier, healthier workforce.

Employers and employees benefit from an HSA partner that makes HSAs easy for everyone

An employer-sponsored HSA program is only successful if employers and employees utilize it to its fullest—especially when it comes to making contributions.

With HSA platform capabilities varying widely, employers are well served to partner with an HSA provider that offers automations and efficiencies to streamline every aspect of HSA program administration, including easy setup and management of employer contributions and tracking program results in real time. Employees also deserve quick and easy account management to be able to adjust contributions on the fly, make one-time lifts to their account and have easy access into their HSA investments.

With an HSA partner that specializes in HSAs and makes every element of the HSA experience easy for everyone—regardless of their level of HSA knowledge—employers and employees alike can maximize HSA success.

Tom Torre is CEO and co-founder of Bend. For nearly 20 years, Tom has led organizations in the consumer-directed health care space. With Bend, he leads a dedicated team helping individuals, employers, financial institutions and other partners leverage a next-generation HSA platform that improves financial wellness and simplifies health care saving.

Read more: 

• 5 HSA myths busted and what happens next
• Value of HSAs estimated to hit over $100B by 2022
• HSAs can help your employees long after they leave your company