2 minute read
Part 2 - Structuring Holistic Contributions
Let’s refocus on what you can control: Attracting and retaining talent, merging health and wealth, and ensuring employee retirement readiness.
If you’re going to address those, you will want to talk about how 401(k)s and HSAs work together.
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In this section we explore the two approaches to consider when looking at how you can use holistic contribution models to increase adoption.
MODEL 1- FUND THE 401(K)
Within the benefits industry, the phrase “Do the minimum to get the maximum” is often thrown out as a simple framework that employees can follow to ensure that they are saving enough in their 401(k).T
he basic premise is that most employers offer a company match, so employees should fund up to the match to avoid leaving free money on the table. But many employees often miss this step.
You can encourage them to participate in a 401(k) and an HSA by offering a match for both.
That is the beginner’s model. Unfortunately, it often results in employees contributing to their 401(k) first and then putting leftover money they can spare (which usually isn’t much) into an HSA. While this works, it doesn’t prepare employees to pay for both regular and medical expenses in retirement.
What if your employees didn’t have to choose?
MODEL 2- EQUALLY FUND THE 401(K) & HSA
The intermediate model involves a paradigm shift around how to approach the funding of the two accounts. Instead of encouraging employees to put money into the 401(k) first, you can decide to give employees a sum of pre-tax funds to put toward either account. Doing so removes the limitation of funding the 401(k) before the HSA and offers employees the chance to fund each account as needed, supporting health and general expenses. It might look something like this:
The basic idea here is that if employees contribute to either tax-free account, you will provide a match. The new result?
Employees don’t retire only to realize they money in their 401(k) might not cover their medical expenses. Instead, they have enough in their HSA and 401(k) to pay for medical and general expenses.
ADMINISTRATION TIP: BE AWARE OF NON-DISCRIMINATION TESTING IMPLICATIONS
Non-discrimination testing implications may arise if you adjust how contributions are structured. Our team can help you manage the legislative legwork to avoid errors and fees.
At this point, you have a new way to structure contributions holistically. But, even if you have the proper number of deductible plans and a new holistic contribution model, you still need to communicate effectively with employees about the HSA.H
ow can you do that in a way that produces interest, adherence, and sustainability? We will show you how with BRI Insights in our next section!
