Morningstar Magazine - October/November 2017 - 40

Spotlight: HSAs

can usually receive higher interest rates.
Investors can also juice returns by selecting a nonFDIC-insured account. Because earning a
meaningful interest rate would require either an
account balance that is much larger than
average or greater risk-taking, we placed little
emphasis on these higher-rate options when
evaluating plans from an interest-rate perspective.
Positive
The HSA Authority, SelectAccount's FreeSaver tier,
and Alliant Credit Union are excellent options
for accountholders using their HSAs as spending
vehicles. Their lack of a monthly maintenance
fee stretches users' healthcare dollars further than
other HSAs. Additionally, Alliant Credit Union
deserves further praise for offering one of the most
competitive interest rates of the plans we
studied: 0.65% for balances of more than $100.
Combined with zero monthly fees, Alliant
Credit Union is the most compelling option for
someone looking to use their HSA primarily as a
spending vehicle.
Neutral
UMB Bank, HSA Bank, Optum Bank,
HealthEquity, and BenefitWallet all charge monthly
account-maintenance fees but provide an
opportunity for those fees to be eliminated when
the account size has crossed a certain threshold.
This is not ideal for those who have recently
opened accounts and have small balances, or for
those who will use their HSAs and do not
expect to accrue large balances. A person holding
a balance of $2,000-the industry average-
would be unable to escape the fees assessed by
Optum Bank, HSA Bank, and UMB Bank.
BenefitWallet is the most attractive of this bunch;
it waives fees for accountholders with
just $1,000.
UMB Bank does not disclose interest rates on its
website. However, given that fees take precedence
when evaluating plans for use as a spending
account, we assigned it an assessment based on
the maintenance charge.

Negative
We cannot recommend using HealthSavings
Administrators and Bank of America for
accountholders who intend to use their HSAs

40

Morningstar October/November 2017

solely as spending vehicles. Both of these
providers charge a monthly fee (Bank of America,
$4.50; HealthSavings Administrators, $3.75),
which will take an outsize bite out of relatively
small account balances, and neither of them
offers to waive this fee for accounts that have
accrued a certain balance. They also offer
uninspiring interest rates on FDIC-insured deposits.

HSAs as Investment Vehicles
When evaluating plans as investment vehicles
( E X H I BI T 3 ), those with two or more positive
scores and no negative scores for menu design,
quality of investments, and price received an
overall assessment of positive. To earn a negative
assessment, a plan would have to score negative
in two of the three areas. Plans that landed in
between received a neutral assessment.
Because performance is backward-looking, we
gave it little consideration when evaluating plans.
We break down each component that makes up
the overall score. UMB Bank would not share
its investment menu with us, so we excluded that
plan from the investment vehicle evaluations.
Menu Design

An HSA plan's investment menu should offer a
comprehensive set of options so that do-it-yourself
investors can build well-rounded portfolios.
"Core" asset classes should include large-cap
equities, small- and mid-cap equities, international
developed or world equities, U.S. diversified
bonds, and either a cash-equivalent or short-term
bond strategy. We also believe it's prudent
to offer multiasset-class funds, which offer built-in
asset-class diversification, for hands-off
investors who wish not to construct or closely
monitor their portfolio.
HSA plans should also resist offering overlapping
investment strategies. Many studies have
shown that an investor with too much choice often
makes poor investment selections or succumbs
to decision paralysis. Instead, plans should offer
one best-in-class option within each asset
class. Of course, there are some exceptions to that
rule. In some cases, it's reasonable to offer an

active and a passive manager, or a more
aggressive strategy to balance a more conservative
one, within one asset class to meet the needs
of different investor types.
Plans in our study that receive positive scores offer
investment strategies in core asset classes
and have limited redundancy of investment
options. Neutral plans often omit one core asset
class or have moderate overlap among offerings.
Negative-scored plans typically have an
unreasonably large lineup or they omit multiple
core asset classes.
Positive
Bank of America, SelectAccount, HSA Bank, and
HealthEquity designed robust menus for
investors. All four plans offer exposure to core
asset classes while limiting overlap among choices.
Within the domestic-equity space, each
plan uses active funds and offers broad-based
index options for participants who want to
minimize investing costs. Investors can also choose
from a nice mix of value and growth U.S. stock
strategies, at least one foreign developed-equity
fund, and an intermediate-term bond fund.
Although these plans certainly have sensible
lineups, some overlap exists. For example,
HSA Bank offers two S&P 500 funds (Victory S&P
500 Index MUXAX and JPMorgan Equity Index
HLEIX), and SelectAccount offers two small-cap
growth funds (Neuberger Berman Genesis NBGNX
and Federated Kaufmann Small Cap FKASX).
Still, those examples represent minor drawbacks
and don't affect the plans' positive menu design
scores. HealthEquity stands out for having
essentially no overlap while providing broad asset
class representation.
Neutral
The HSA Authority almost received a positive
score for menu design. However, it has slightly too
much overlap among options. For example,
it offers nine large-cap equity funds and three
balanced funds that feature active underlying
managers. Modestly narrowing the lineup would
improve the plan's appeal.
BenefitWallet and Optum Bank receive
neutral scores for omitting critical asset classes



Table of Contents for the Digital Edition of Morningstar Magazine - October/November 2017

Contents
Morningstar Magazine - October/November 2017 - Cover1
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Morningstar Magazine - October/November 2017 - 1
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Morningstar Magazine - October/November 2017 - Contents
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