What is Human Capital Management (HCM)? - Arcoro

Did you know that there is a rising trend within workforce benefits that includes supplementing traditional employee retirement options such as 401k, 403(b) SEP and more with a Health Savings Account (HSA)? According to Fidelity Investment Research, an HSA can add an additional $119,000 in retirement savings for employees. However, many employers and employees still do not understand the benefits of this triple-tax advantage savings plan. Let’s discuss HSA vs 401k and how you can use the two together to maximize employee happiness, well-being and retirement.

HSA vs 401k benefits

An HSA combined with a retirement account, such as a traditional 401k, can offer an array of benefits to enrollees who utilize the pairing. Let’s learn more.

What is an HSA?

Combined with a High-Deductible Healthcare Plan (HDHP), an HSA enables enrollees to set aside money on a pre-tax basis in a special account to pay for approved healthcare costs. As we mentioned above, HSAs offer a triple-tax advantage savings plan.

Here’s how:

•         Employee contributions are tax-deductible, or if submitted through a payroll deduction, are pre-tax
•         Investments made by employees can potentially grow tax-free (earned income vs unearned income)
•         Cash withdrawals are tax-free for qualified medical expenses

Based on variable need, an HSA offers enrollees the funds they can use to pay deductibles, coinsurance, copayments, medications and out-of-network provider visits for qualified medical, dental and vision requirements.

Under law, enrollees in an HDHP are protected for their maximum out-of-pocket expenses. Additionally, a lot of people confuse an HSA and Flexible Spending Account (FSA), and how they operate. The biggest difference is that an FSA is a use-it-or-lose-it account. Enrollees with these accounts cannot rollover the cash in their accounts into the next year.

Compared to an HSA, which rolls over year-over-year and is your money forever.

Growth in adoption of HSA’s

According to a 2018 report from Fidelity investments, they added 117 new employers to their HDHP/HSA plans—an increase of 50 percent from 2017. They noted that when employers offer HSA-eligible plans, 46 percent of workers’ add it to their plans.

Even with the increase in enrollments, one of the largest hurdles to overcome is basic education on what these types of plans can do for employees and their dependents. There’s still a lot of work that needs to be done to showcase what an HSA can do. It’s important to help employees plan for the short and long-term.

How it benefits employees

The benefits for employees who enroll in HDHP and HSA plan are many. They include:

•         Federal Income Tax Deduction
•         State Income Tax Deduction
•         Payroll tax avoidance through either employer contributions or employee deferral through a Section 125 plan that limits the reach on taxes from Social Security, Medicare, FUTA, Railroad Retirement Act, and in many cases State Unemployment
•         Tax deferred earnings grow
•         Cash withdrawals are tax-free for qualified expenses
•         Cash rolls over year-over-year
•         Greater liquidity options—ability to move money for investments and keep accounts insured
•         Can contribute to account during retirement
•         Other people can contribute to your fund
•         After the age of 65, enrollees can withdraw from their HSA to pay for expenses that are non-medical related, penalty free

How it benefits employers

The benefits for employers who offer an HDHP and HSA are many. They include:

•         With deductions straight from payroll, contributions to HSA are pre-taxed, which helps save employers money to use to offset HSA administration costs
•         HDHPs, combined with HSAs are usually less expensive than most other group healthcare plans
•         After setup, there is not much support needed by the employer. Employees oversee the management of their accounts and available cash
•         Employee well-being and production improve with stronger healthcare coverage
•         Employer brand grows as employees are happy and feel secure. This directly affects your ability to attain and retain top talent

Supplementing 401ks with HSAs

As the tax advantages of HSAs are becoming more realized, enrollees are increasingly using these advantages to support their retirement savings. For those 65-and-older, you can withdraw funds to pay for non-medical related expenses, penalty free. With that said, taxes may still be applicable like Traditional IRAs, but you will avoid a 20 percent penalty from the IRS*.

Combined with a traditional retirement account, like a 401(k), enrollees have a chance to save an additional $119,000 for their retirement with an HSA.

*The withdrawal of funds that are not medical-eligible, pre-65-years-old, puts enrollees as risk for to pay taxes on the withdrawn amount. Additionally, the IRS may add an extra 20 percent as well.

The Arcoro platform

The benefits management process is always ongoing. Whether you’re preparing and overseeing the Open Enrollment process, or if you’re updating your data for any life changes, there are so many workflows that need to be accounted for.

If you’re relying on manual processes, or a tool with limited capability, you will be at risk for various negative outcomes including:

•         Data errors due to human-error and manual inefficiencies that can affect employee benefit selections as well as payroll deductions
•         The antagonization of your workforce with disruptions that affect coverage for them and their dependents
•         Workforce churn due to unhappiness and confusion regarding benefits
•         Employee turnover affects processes, production and sales

The Arcoro Benefits Management module automates key workflows within your benefits administration duties. This helps to prevent user-error and keeps your data clean and true. It’s built-in integration to over 300 partners allows for seamless connections with top carriers, payroll providers, ERP systems, business intelligence tools, HRIS and more.

This allows you to scale your technology easily as your requirements call for you to do so.

The full cloud-based Arcoro platform

Aside from the Benefits Management, Arcoro features modular functionality with the following automated tools:

•         Core HR—featuring employee self-service tools
•         Benefits Management
•         ACA Compliance
•         Time and Attendance
•         Payroll Processing
•         Applicant Tracking System
•         Onboarding
•         Performance Management
•         Learning Management
•         Succession Planning

All these tools can be used to support the security, management and transmission of your high-compliance data throughout Arcoro platform, or with integrated third-party partners.