Education Center

Health Savings Accounts (HSA)

View the link below from Mellon Bank explaining Health Savings Accounts (HSA) that are associated with High Deductible Health Plans (HDHP)! 

Definitions

  1. ERISA – Employee Retirement Income Security Act of 1974.  Federal legislation that regulates the establishment and management of corporate pension or retirement plans, also known as private sector plans.  ERISA guidelines address the following:

    Eligibility
    Funding
    Vesting
    Communication
    Non-discrimination

    ERISA regulations apply to private sector (corporate) plans only.  Plans for federal or state government workers (public sector plans) are not subject to ERISA.
  2. Fiduciary – Anyone legally appointed and authorized to represent another person, act on that person’s behalf, and make decisions necessary to the prudent management of that person’s account. 
  3. Modern Portfolio Theory – A method of choosing investments that focuses on the importance of the relationships among all the investments in a portfolio rather than the individual merits of each investment.  The method allows investors to quantify and control the amount of risk they accept and return they achieve.
  4. Basis Point – A measure equal to 1/100 of a percent. Ten basis points of $1000 is $1.00.
  5. Traditional 401(k) – A qualified plan that is funded with before-tax dollars, grows tax deferred, and is taxed as normal income upon withdrawal.
  6. Roth 401(k) – A qualified plan that is funded with after-tax dollars, grows tax deferred, and is not taxed upon withdrawal.
  7. Vesting – The time after which participants are allowed to access contributions under specific, limited conditions.
  8. Rollover provision – A participant is allowed to roll over his assets from a business-sponsored qualified plan to an IRA or another business-sponsored qualified plan once per 12-month period. The rollover must be completed within 60 days of withdrawal of the funds, and 100% of the withdrawn amount must be rolled into the new account without the participant ever taking possession of the funds. 
  9. Hardship provision – Some plans allow withdrawals of a portion of vested funds only under specific conditions (e.g. medical costs, post-secondary education, first-time primary home purchase).
  10. Investment Policy Statement – The “business plan” used by those administering employee benefit plans to set out the objectives, policies, investment selections, and monitoring procedures for the plan.  May also be used by investment advisers to determine policies to be followed with their clients.
  11. Investment Committee – A committee established by the trustees of the plan to act as fiduciaries in the management of the plan.  Depending on the level of fiduciary responsibility, the committee can have authority to determine the provider, advisor, plan design, and investment options.
  12. Plan Provider – The company that provides the platform for the investment options held within the plan.
  13. Plan Sponsor – The employer that establishes the qualified retirement plan for its eligible employees.
  14. Plan Advisor – A fiduciary that acts to advise the plan’s investment committee on various aspects of the plan.
  15. Retirement Red Zone – The 10 years leading up to retirement during which investors should employ specific strategies to ensure they attain their financial goals before they stop working.