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HSA contribution models: Which one is better?

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Employers building out their company’s HSA contribution models often choose the default option, but there are more choices than general experience might suggest. While there is nothing wrong with the status quo, employers should consider their financial goals and allow that to inform their choice, even if it means adjusting certain processes.

In this article, we explore two approaches employers can examine when considering HSA contribution models to increase adoption.

Model 1: Do the min to get the max

During benefits enrollment, the phrase “Do the minimum to get the maximum” is commonly touted as a baseline employees can follow to ensure they are saving enough in their 401(k).

This logic is based on the premise that most employers offer a company match for a 401(k), then employees fund up to the match to avoid leaving free money on the table. But many employees don’t take full advantage of this opportunity.

Additionally, this model often results in employees prioritizing contributions to their 401(k), then putting money they can spare into an HSA. This doesn’t prepare employees to pay for both livelihood expenses and medical expenses in retirement.

What if there was a model where employees didn’t have to choose between the two?

Model 2: Equally fund the accounts

The second of the two HSA contribution models involves a paradigm shift around how to approach account funding. Instead of the 401(k) being the default retirement vehicle, employers can encourage employees to participate in a 401(k) and an HSA more equally by offering a match for both.

The basic idea of this model is that employers can give employees a sum of pre-tax funds to put toward either account.

Providing a match regardless of which tax-free account employees contribute to accomplishes several simultaneous outcomes:

  • Removes the limitation of funding the 401(k) before the HSA
  • Offers employees the chance to fund each account as needed
  • Prepare employees for both healthcare and general expenses in retirement

The result? Employees don’t have to worry about their 401(k) not having enough to cover healthcare expenses in the long run. Instead, they can have peace of mind knowing they’ll be prepared to pay both healthcare and general costs in retirement.

Making a decision

Which option you choose will depend on which strategy aligns most with your company’s goals. However, even if you know which model you want to use, you still need to tell employees about it for it to work.

Download our free HSA Adoption Guide for a roadmap on how to effectively communicate with employees about your HSA offering.

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