As employers continue to shift their retirement benefits program to a defined contribution, self-service model, we will continue to see challenges for employees in areas beyond “retirement readiness.”
Most employees are primarily concerned with paying down debt, saving for large purchases or affording child care and college education. These financial concerns need to be addressed and managed before employees can plan and act on retirement savings.
Looking beyond retirement readiness to ensure financial wellbeing for your employees
Numerous studies have shown how financial stress impacts the workplace. Seven out of 10 American workers say financial worry is their most common cause of stress. The American Institute of CPAs found that roughly one in five employees admitted they had skipped work in the past year to deal with a financial problem. These day-to-day stresses impact the employer’s bottom line resulting in lost hours while employees sort out their personal affairs.
Financial stress can also increase medical costs for both employees and employers. Our own Healthcare Attitudes survey conducted earlier this year reveals that half of Millennials state that they delayed, or did not seek treatment for a healthcare issue due to costs. Increased medical costs result in increased financial stress and it can be a self-perpetuating force.
The Consumer Financial Protection Bureau’s definition of financial wellbeing, established last year, is when people (1) have control over day-to-day and month-to-month finances, (2) have the capacity to absorb a financial shock, (3) are on track to meet financial goals, and (4) have the financial freedom to make the choices that allow them to enjoy life. Employers need to widen their scope beyond simple retirement readiness, and address the employee’s overall financial wellbeing.
The role of the employer
For the new DC model to work, and for employees to better prepare for retirement, they need the right tools, information and education. In our recent joint study with the National Business Group on Health™ , which looked at emerging technologies that employers are investigating to promote better health and wellbeing, employers told us that helping employees prepare for retirement was their top financial wellbeing objective. But there is clearly a need to go beyond the technology answer.
As employees continue to face the challenges of financial planning, they’re turning to their employers for more help. Many of our own clients have started launching educational and promotional campaigns to improve financial wellbeing, and over 90% of large plan sponsors will be adding a comprehensive financial wellness program in the workplace over the next decade. They recognize that by supporting their people in this way they can help address the financial stress factor, improve productivity, boost engagement, and potentially reduce medical costs.
Three critical dimensions of a financial wellbeing program
There are lots of resources out there for employers today to help launch financial literacy and educational programs. But what exactly should you be looking for?
A full featured financial wellbeing program takes a goal-oriented approach and consists of:
- Education. Education helps employees to improve their financial literacy and understand how to use the financial tools that may be available for them to make informed decisions.
- Account aggregation. Account aggregation brings together data from both employment and external financial accounts so the employee can see their entire financial picture and help better plan for the future.
- Advice. Lastly, a live financial advisor should be available for employees to help fill in the gaps and address any questions that employees may still have when planning and managing their finances.
For decades retirement planning was a non-issue for employees because of the security of a defined benefit plan managed by the employer and social security. Today, more and more employees cannot rely on either of these avenues and are being forced to manage their long-term finances on their own. As both employers and employees adjust to these new expectations, it’s only reasonable that workers are given the right tools and decision support they need to make informed decisions.