Morningstar Magazine - October/November 2017 - 41

from their investment lineups. BenefitWallet's
menu lacks a diversified U.S. bond strategy.
PIMCO Investment-Grade Corporate Bond PIGIX
serves as the closest substitute, but that's
not an appropriate fund for an investor seeking
broad fixed-income exposure. Investors can
buy MFS Conservative Allocation MACFX, which
stashes 60% of assets in a diversified bond
strategy and 40% in equities, but an investor might
want more than 60% in a core fixed-income
strategy. Similarly, Optum Bank's roster excludes a
diversified U.S. bond strategy. Participants
can buy allocation funds that provide varying
degrees of exposure to intermediate-term bonds
and stocks, but investors who want core
bond exposure are out of luck. Optum Bank's plan
also does not offer a foreign developed-equity
fund, but it does offer two world-stock funds that
mix domestic and international equities.
Negative
Two plans receive negative scores for having
overwhelming lineups. HealthSavings
Administrators has a gigantic investment roster of
494 total investment options. The plan offers
seven investment menus. Six menus feature
options from one fund family-T. Rowe Price, TIAA,
Franklin Templeton, Vanguard, DFA, and MFS.
Only Vanguard offers a comprehensive investment
lineup; the other fund families omit anywhere
from one to four core asset classes. Investors
cannot mix and match investments among
the menus, giving them mostly incomplete toolkits
to work with. The seventh menu, Investor
Select, features more than 400 unique funds from
more than 40 different fund companies. With
multiple layers of required decision-making
and mostly incomplete investment lineups, the
plan's setup is far from ideal.
Alliant Credit Union also represents an egregious
example of providing too much choice,
where plan participants must comb through 125
investment options. The plan has nine large-blend
U.S. equity strategies, eight intermediate-term
bond funds, and five real-estate strategies,
to name a few of the many overlapping areas.

evaluate plans' managers, we leveraged our
forward-looking mutual fund ratings,
called the Morningstar Analyst Rating for funds.
To determine scores for quality of investments,
we subtracted the percentage of options
that receive Neutral and Negative ratings from the
percentage that receive Gold, Silver, or Bronze
Morningstar Medals. If that number was equal to
or greater than 50%, the plan received a
positive score for quality of investments. The
remaining plans earned neutral scores. To receive
a negative score, a plan would have to offer a
significant number of Negative-rated funds;
fortunately, no plan does.
Generally, the plans included in our analysis have
populated their investment menus with solid
managers ( EXHIB IT 4 ). Four out of nine plans that
we evaluated earned positive scores for quality
of investments.
Positive
HealthEquity has the strongest lineup. The plan
delivers across asset classes; 21 of the 23 funds are
Morningstar Medalists, including 13 Gold-rated
funds. Each designated core asset class features a
Gold-rated fund, improving the plan's appeal.
The plan uses only Vanguard funds, with low-cost,

broadly diversified index funds representing 65%
of choices. It's the only plan that offers more index
options than actively managed strategies.
Optum Bank and The HSA Authority also stand out
from the crowd. In both plans, Morningstar
Medalists account for at least 80% of options, with
Gold-rated funds representing about 40% of
choices. The plans' heavy tilt to the Vanguard fund
family explains this; roughly half of the underlying
funds in each plan are Vanguard offerings,
most of which earn Gold or Silver ratings. Strong
active managers from fund families such as
Dodge & Cox and American Funds round out
the plans.
BenefitWallet distinguished itself by selecting
solid active managers from a diverse set of
fund families. That said, the plan offers Ivy Asset
Strategy IVAEX and Ivy High Income IVHIX,
both rated Negative, meaning we expect the funds
to underperform peers and their benchmarks
over the long haul. Investors should steer clear of
those options.
Neutral
Morningstar Medalists represent between 47%
and 58% of options at SelectAccount, HSA

EXHIBIT 4

Medal Heavy More than 80% of the underlying funds of the top three plans are
Morningstar Medalists.
Percentage of Offerings That Earn
Morningstar Medals
Œ „ ´

HealthEquity

57

30

4

Optum Bank

42

31

15

The HSA Authority

38

31

13

BenefitWallet

19

15

27

SelectAccount

13

21

25

Alliant Credit Union

11

24

18

HSA Bank

5

10

33

Quality of Investments
HSA providers can improve their plans' appeal by

HealthSavings Administrators

9

16

22

Bank of America

5

14

29

offering strong underlying strategies. To

Source: Morningstar. Data as of 05/31/2017.

0%

20

40

60

global.morningstar.com/Morningstarmagazine

80

100

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