Insights

Managing Employee Financial Wellness Amidst the COVID-19 Pandemic

November 2, 2020

Employee Benefits

The pandemic has affected employees’ lives on many levels, including their financial wellness. Remote working, homeschooling, and physical and mental health concerns have upended everyone’s lives. Increased unemployment and concerns for employees’ financial futures continue to be top stressors.

Has the COVID-19 pandemic affected employees’ financial wellness? Are they living on the edge of financial ruin or have they made changes to lessen the potential impact? We found that employees are rapidly reconfiguring their lives to cope with new financial realities, and employers are in a unique position to help them.

Coins stacked on top of financial papers as employees plan for financial wellness.

Tapping into Retirement Savings

Because of COVID-19, section 2202 of the CARES Act established expanded retirement savings distribution options and favorable tax treatment for withdrawals up to $100,000 of coronavirus-related distributions from eligible 401(k), 403(b), and IRA plans. Qualified individuals include employees or their spouses who were diagnosed with the SARS-CoV-2 virus or with the disease COVID-19. In addition, those who experienced an adverse financial impact because of being quarantined, furloughed, laid off, or unable to work also qualified. Eliminating early withdrawal penalties and providing extended loan payback options were also part of the CARES Act.

How many people took advantage of the CARES Act? Studies vary from 2.8% to 4% of all savers. It appears that account holders did not rush to get cash, which will help them grow their retirement savings for the long term. Employers are balancing the need for employees to have access to retirement savings while keeping them on track for their long-term savings goals.

Plan advisors are working closely with plan sponsors to make sure their retirement plans remain healthy. An employee survey estimates that it will take more than six months for them to get back on track financially, while Willis Towers Watson noted that 12% of companies suspended 401(k) matches, and 23% are considering doing so this year.

Is Employee Debt Rising?

The Federal Reserve Bank of New York’s Household Debt and Credit Report for Q2 of 2020 reported that the average person had nearly $52,000 worth of debt. This amount includes mortgages ($35,660), home equity lines of credit ($1,370), auto loans ($4,760), credit card debt ($2,980), school loans ($5,610), and other personal loans ($1,520).

While households still need cash, they are not turning to credit card debt for additional funds. A study by Experian showed that credit card debt did not rise because of COVID-19 stay-at-home orders or increased unemployment. The reason was that unemployed workers received increased unemployment benefits and did not have to turn to credit to cover their bills. The average credit card debt decreased by 1%, while credit scores increased by an average of five points. It appears that households made drastic changes to their economic lives, lowering both their debt and their expenses.

Making it Easy to Save Money

Employees are struggling to save money, and many are living paycheck to paycheck. One way to help employees save is through auto-enrollment into savings programs. Auto-enrollment automatically enrolls employees into retirement or other savings programs and makes them take the step to opt out if they do not want to participate. Studies show that using this method for retirement savings results in only 15% of employees opting out of the program.

Case Study for Auto-Enrollment

Woodruff Sawyer worked with a Midwest manufacturing client to automatically enroll 1,000 employees into their company’s retirement plan to save 6% of their pre-tax income. Out of 1,000 people, .5% (50 employees) opted out of the program. Studies show that if employees must fill out traditional forms to enroll in the retirement plan, only 70% will enroll.

Auto-enrollment is a proven method to increase savings with little effort needed by employees or staff members.

Getting Wages to Employees Faster

Leading companies are finding ways to get earned wages into employees’ hands faster. In our recent webinar, we heard from an innovative company that is out to “kill predatory lenders,” including payday loan companies that charge up to 700% interest. Rain partners with employers to allow employees to access a percentage of their earned wages, immediately, before the routine payroll cycle.

Rain is available on a mobile app, and they have worked successfully with FedEx and Walmart to get money into their employees’ wallets faster. They now focus on small to medium-sized businesses to broaden the number of companies that benefit from on-demand payment.

When employees struggle to get from paycheck to paycheck, Rain can help ease the burden and prevent the need for high-interest, short-term debt.

Financial Literacy is Everyone’s Responsibility

The recent economic volatility has heightened the need for financial literacy. These skills are now being taught in high school in 21 states. Employers can build upon this foundation by offering additional financial wellness education benefits to their workforce.

Retirement planning, student loan payoff, and consumer debt management are just a few of the areas that will improve financial literacy for employees. MetLife’s PlanSmart financial wellness program helps employees create and achieve a plan that is unique to their needs and includes access to financial planners. For those employees who want to create a DIY financial plan, MetLife also offers desktop and mobile applications to help employees manage debt, plan ahead, and save more. Other companies, including LearnLux and BestMoneyMoves, also offer digital tools and financial planning advice for employees at every stage of life.

SmartDollar helps employees develop the life skills necessary to budget their money. Partnering with thousands of companies, they have 25 years of experience helping people create plans that work. Self-paced video series by Dave Ramsey, Rachel Cruze, and Chris Hogan help participants create a seven-step plan to get control of debt and expenses, achieve quick wins, and build momentum.

Does Financial Wellness Work?

The pandemic dramatically increased stressors in the lives of employees and their household members. Financial wellness programs play a unique role in helping to relieve the extra stress brought about by such an impactful event.

Alliance Bernstein found that 4in 10(40%) companies now offer financial wellness programs, and over half (53%) offer investment planning solutions. As a result, employees become more engaged in the organization and reduce their stress. Not only do these programs help alleviate stress, which is one of the top reasons for lack of productivity in the workplace, but they improve employee engagement. These benefits also serve as a valuable employee attraction and retention tool.

Employers: It’s Time to Get Involved in Financial Wellness

Financial wellness is fast becoming a necessary life skill and important employee benefit. The challenge most employers face is how to implement a program and, more importantly, make sure employees stay engaged long-term. The Retirement Team at Woodruff Sawyer has worked to make financial wellness, or “coaching,” not just an event, but an ongoing partnership with plan participants along their journeys to retirement. They can work closely with you to ensure the health of your retirement plan, provide financial resiliency to your employees, and improve productivity by easing employee financial stressors.

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All views expressed in this article are the author’s own and do not necessarily represent the position of Woodruff-Sawyer & Co.

Kristina Keck

Vice President, Retirement Plans

Contributor, Employee Benefits

Kristina helps lead Woodruff Sawyer’s Retirement Plan Practice, with more than 20 years of experience in the corporate pension and the investment industry. She has been recognized as one of the National Association of Plan Advisors (NAPA) Top Female Retirement Advisors and San Francisco Magazine's Five Star Wealth Managers.

415.399.6459

LinkedIn

Kristina Keck

Vice President, Retirement Plans

Contributor, Employee Benefits

Kristina helps lead Woodruff Sawyer’s Retirement Plan Practice, with more than 20 years of experience in the corporate pension and the investment industry. She has been recognized as one of the National Association of Plan Advisors (NAPA) Top Female Retirement Advisors and San Francisco Magazine's Five Star Wealth Managers.

415.399.6459

LinkedIn