Insights

Help Your Employees Overcome Financial Wellness Roadblocks

October 21, 2019

Employee Benefits

Financial wellness is a hot topic in employee benefits. You’ve no doubt heard how important it is for everyone to save for retirement. You’ve also heard reasons why employees don’t have savings set aside. Those reasons include living paycheck to paycheck and having no emergency savings. A report by the Federal Reserve indicated that 40% of Americans could not produce $400 for an emergency without going into debt or selling something.

Plant in Money Jar Savings

Debt is already prevalent in today’s society, which is another prominent reason why workers don’t think they can save for retirement. Using data from the Federal Reserve, Nerdwallet calculated the following debt levels for the average American household:

  • Credit Cards: $6,829
  • Student Loans: $46,783
  • Auto Loans: $27,708

Given the degree of insurmountable debt and struggle to budget, there’s a clear perception that retirement savings are out of reach. Overall, we find that many Americans lack financial literacy and don’t have a means to prepare for their future. This can put the onus on employers to take charge and improve their employees’ financial wellness.

Why Employers Should Get Involved in Financial Wellness

Employers also suffer as a result of their employees’ financial stress. Statistics show that over 82% of employees have financial stress, and SHRM indicated that there has been a 34% increase in absenteeism and tardiness. Financial stress is a productivity killer that distracts employees from their work. It’s difficult for an employee to add value to their company when they have to continuously check on their bank balance.

When employees can’t save, they need to work longer. This can result in a staggering expense to the employer as they pay for higher workforce costs.

A Prudential survey revealed some staggering costs to employers for delayed retirement. Incremental workforce costs can be 1.0% to 1.5% of entire workforce costs. For example, if an employer has 3,000 employees with workforce costs of $200 million, a one-year delay in retirement age may result in additional costs of $2–3 million. For an individual, the incremental cost may be $50,000, which is the cost difference between employing the retiring employee versus hiring a new employee. 

Employers benefit by taking strategic steps to help employees save for current expenses and for future retirement. While employers may not want to get involved in the financial lives of their employees, it may benefit them to do so.

The Prudential survey recommended implementing retirement programs that help employees stay on track with their plans, providing financial education that includes a focus on financial wellness and using data analytics to analyze the cost of delayed retirement to the organization. 

Keeping employees on track with their retirement plans is a financial win-win for the employee and the employer.

The Automatic Solution

Employees are struggling to save money. Many are living paycheck to paycheck as the cost of living continues to rise.

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 don’t want to participate. Studies show that using this method for retirement savings results in only 15% of employees opting out of the program.

Woodruff Sawyer recently 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 have to 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.

Technology Speeds Up Enrollment

Using technology to improve the ease of enrollment increases participation. 

Similar to auto enrollment, technology can play a part in improving enrollment. Recently, a technology company that sells home goods based in both Los Angeles and New York City faced the common problem of low enrollment. The assumption was that employees did not enroll in the retirement plan because they didn’t have the disposable income, resulting in only 25% of the staff members participating in the plan.

The company discovered that it had less to do with disposable income, and more the cumbersome enrollment process that kept people from participating. The text-based, three-screen application increased participation by 60% within two weeks of rollout. When employees were asked why they did not enroll before, it was not just because they could not afford to (even though they lived in-high cost areas), but 30% responded that enrollment process was too complicated and 50% commented that they were too busy. 

Financial Literacy is a Must

While employers can make it easier for employees to save money, they still need to handle money wisely once they leave the office. How can you help your employees become more financially fit? 

Several vendors offer money-management services, so working with your benefits partner can identify valuable programs to offer to your workforce. Once such program is MetLife’s Retirewise workshop series. Retirewise is a financial education program that can support and complement your existing benefit offerings while providing your employees with the information they need to achieve their financial goals. While this benefits the employee, employers benefit by reduced financial stress and increased employee engagement. Their studies show that 80% of employees want financial planning assistance, but only 20% of employers offer such services.

MetLife partners with MassMutual financial professionals to deliver objective information on a wide range of topics to meet employees’ diverse needs. The program is comprised of four in-person workshops: 

  1. Building a Foundation
  2. Creating and Managing Wealth
  3. Establishing a Retirement Income Stream
  4. Making the most of what you have 

MetLife has conducted nearly 11,000 workshops with over 190,000 attendees, resulting in nearly 80,000 appointment requests. They note that over 1,915 companies offer their programs, including 43% of Fortune 500 firms.

SmartDollar is another program which claims to have created an average $15,000 turnaround per participant, whether from debt payoff to emergency savings or towards retirement goals. The service is offered by financial advisor Dave Ramsey and his team of experts who offer implementation tools, self-paced videos, mobile app, comprehensive employer reporting about money saved and debt paid off, support, and competitive pricing. Used by Costco and small to medium sized businesses, it could be a start to getting your employees on track.

Today’s Cashflow versus Long Term Investment

Financial literacy should focus on saving for tomorrow, but are there other ways to get your employees past the focus on today’s paycheck-to-paycheck living? Walmart searched for five years to help their employees address this gap and found assistance in the app Even.

Even helps employees understand what is happening to today’s paycheck. How much vacation time do you have? How many hours have you worked? What will your next paycheck be? The Even mobile app helps employees understand their current paycheck and receive up to 50% paycheck advances without incurring the high interest costs of a paycheck advance by paying a $6/month subscription fee. Even can also deduct expected bills to pay, resulting in an “okay to spend” balance. Similar FinTech companies are developing solutions so employees know their current paycheck, understand cash flow, and get paid faster. 

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

No longer is it necessary to go to great lengths to convince employees to save or use outdated systems that create barriers to entry. Woodruff Sawyer can work with you to design programs and develop automated systems that help your employees save more than ever before without putting more responsibility on your staff.

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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