Health Savings Accounts investment options: some questions

[D1984]

1.95%....WTF??? Are these broker-sold funds (i.e. B-shares or C-shares with deferred charges built into them and higher expense ratios in lieu of a load...and let's not foregt about 12b-1 fees) or are they just regular no-load funds with ridiculously high expense ratios? What were the fund choices? Which one had the 1.95% expense ratio?

If I was in your shoes I might make a list of all the HealthEquity-provided funds showing their insane expense ratios and then pit them against the comparable Vanguard funds from the other HSA provider you mentioned and then show the list to HR and ask them to consider switching to HSA  Administrators.

The only reason I can think of for an employer to provide an HSA with such expensive funds is if the HSA provider itself (HealthEquity in this case) gave said employer a good deal on the employer-paid portion of the fees (registration, setup, account management, trustee/custodian fees if applicable, etc) and then HealthEquity turns around and makes up for it (i.e. makes its money back) by soaking the HSA savers via high fund fees (maybe Healthequity or its brokers get a cut from the mutual funds' fees; I know this isn't likely but why else would they offer such high-fee funds when just as good low-fee ones are available?).

I don't really know what to tell you at this point...AFAIK (MediumTex would know more about this since he's a pension/ERISA/employment attorney IIRC) there isn't a "fiduciary duty" imposed on employers who provide HSAs so if (diplomatically and politely) asking to switch over to another HSA provider doesn't work you may be stuck with high-fee funds. If you do want to try to conince your HR department get as many employees as possible on board before you try; When only myself and three other people asked about a Roth option on our 401Ks they wouldn't do it but when we went around over the next year and explained to all the non-highly compensated employees (not the IRS's or DOL's definition per se of "non highly-compensated employee" but merely anybody who wasn't in a very high tax bracket based on what they made in income) how a Roth option would serve them better than a deductible option we had over fifty people asking about a Roth option before the year was out and the next year we finally got one.

[WildAboutHarry]

I don't think you have to  stay with the custodian your employer picks.  You can transfer funds out of an employer-sponsored custodian, AFAIK.  Look out for transfer costs, though.

HSA Bank, HSA Administrators, and others all provide reasonable (on a relative basis) costs and investment choices. 

If you are healthy (or can pay routine health expenses out of pocket) HSAs are the last great tax-free/tax-deferred deal out there.

[WildAboutHarry]

So, crappy investment options notwithstanding, I ought to max out the HSA before maxing out a 401k even, yes? 

#1 is right, always get the free money (the match).

I'm not sure about the HSA being the second priority.  That depends on too many other variables.  For example, as I've lamented elsewhere, CA does not allow a deduction for HSA contributions, gains and interest, etc.  So if you are in CA, you might want to switch the order a bit, with CA deferred accounts (401(k)/IRA) taking priority.  Similarly the Roth and IRA/401(k) choice is tough.  I like tax-treatment diversification, but in a high-state-tax state it might be better to favor full deferral than to fund the Roth (i.e., in CA you take a 10% haircut on a Roth contribution).  That said, I've funded Roths from time to time, just for the diversification benefit.

With HSAs, a big unpredictable is current and future health and healthcare costs.  Assuming you can accumulate a substantial HSA balance during your working years, you could end up with a pot of tax-free money for healthcare, long-term care, etc. or at worst (best?), an additional IRA during retirement.  And even if you end up spending up most of the HSA balance each year, you still get the federal and perhaps state tax benefits.