Summer is a time for heat, hurricanes, and our “Summer Reading Guide,” which takes the form of a seasonal stroll through the research and data that have shaped the institutional retirement market over the past 12 months.
This year, Health Savings Accounts (HSAs) and financial wellness captured many headlines and reflected something of an evolution in the industry, where discussion expanded beyond the more traditional topics (i.e., plan design, participant actions, and expanding coverage) found in prior years (see our 2018 Summer Reading Guide for some good examples). This year, we offer a quick plot summary of the stories surrounding these “best-selling” topics.
HSAs in the spotlight
Devenir’s 2018 Year-end HSA Research Report mirrored the growing industry enthusiasm over HSAs, noting that HSA accounts topped 25 million in 2018 (up 13%) while HSA assets grew to $53.8 billion (up 19%). However, such success doesn’t come without a few challenges. First, Devenir’s focus on top-line growth glosses over the fact that average total account balances dropped from $16,457 in 2017 to $14,617 in 2018 (largely due to poor market conditions toward the end of the year), the first such time account balances had fallen in the 7 years that Devenir has been tracking the industry. Additionally, recent EBRI research suggests that people spend more on medical expenses as their HSA account balance increase, thus blunting the long-term growth potential for HSA account balances. Finally, Morningstar’s 2018 HSA Landscape report notes that investment options are improving but that HSA’s suffer from high fees and poor transparency.
Overall, there is still much to learn about the behavioral economics of HSAs. How will participants respond should the market suffer a major correction, thus diluting savings that might have been used to pay for short-term medical bills? Is the average participant capable of crafting an investment strategy that capitalizes on the benefits of HSAs without neglecting long-term retirement savings? In December, Cerulli hypothesized that more education is needed to help redefine HSAs as a retirement savings vehicle, but education campaigns have never been particularly effective in changing defined contribution participant behavior, so the prospect of a renaissance centered on HSAs seems low. Furthermore, the questions surrounding HSA fiduciary considerations that were raised at the time of the Department of Labor’s now-dormant fiduciary regulations remain largely unanswered.
Of course, none of this is likely to impact the short-term trends carrying the HSA market forward. The industry bears similarities to other institutional retirement markets in that it is likely to fall prey to legislation intervention. That may ultimately do more to define the future of HSAs than anything else.
Is financial wellness the cure?
The concept of employee “financial wellness” has received a great deal of attention over the past year, with no less than a half-dozen pieces of thought leadership published on the topic. Driven by claims of improved employee productivity and higher employee loyalty, Callan’s 2019 Retirement Trends report found that financial wellness was the third highest ranked “primary area of focus over the next 12 months” after not being rated in 2018. Alight’s 2019 Hot Topics in Retirement report meanwhile found that the percentage of employers “very likely” to create or focus on financial wellbeing programs beyond retirement decisions has more than doubled in the past five years, jumping from 30% in 2014 to 65% in 2019.
The driving force of this movement is likely less focused on helping participants save more than helping them better manage their debt. In May, the Federal Reserve’s Quarterly Report on Household Debt and Credit noted that total household debt rose for the 19th straight quarter, with student debt/loans being a major point of concern among the press and policymakers. Loan balances have more than tripled since 2004 and now stand as the largest source of nonmortgage consumer debt – impacting more than 20% of American families.
Employers have also taken notice and are slowly rolling out programs to help. EBRI’s 2018 Financial Wellbeing Survey found that nearly a third (32.4%) of employers reported offering or planning to offer some student loan debt program. Such programs could include student loan debt consolidation and refinancing services or a student loan repayment subsidy that is employer paid. However, they significantly trail more established “savings and reimbursement” benefits like employee discount (83%) and tuition reimbursement (77%) programs. Additionally, employee participation (when offered) is low — MetLife’s 17th Annual U.S. Employee Benefit Trends Study (2019) estimates that only 19% of employees take advantage of financial wellness programs offered by their employer.
What is clear is that the need for such programs remains strong despite a decade of strong economic performance and historically low unemployment – PwC’s 2019 Employee Financial Wellness Survey found that a record numbers of respondents (67%, up from 47% in 2018) find it stressful dealing with their financial situation. However, while noble in its purpose, financial wellness may ultimately suffer from the same headwinds that have hindered prior attempts to improve participants’ financial health and knowledge. A Cerulli’s June 2019 report found that successful financial wellness programs will need to deliver actionable goals (which allow workers to be more accountable for outcomes) as opposed to the education-oriented platforms that are common in the industry. Crafting frameworks to drive participant actions has never been a particularly strong-point of the industry, which is why automated solutions (e.g. enrollment, escalation, asset allocation) have become so successful. Can financial wellness succeed where others have failed? Unfortunately, we will likely need to wait for the sequel to answer this question.