Financial wellness has been a popular buzzword of late. Few have latched onto the phrase with more enthusiasm than employers aiming to avail their workers of tools and programs that can help put their finances on firmer footing.
But businesses aren’t rolling out these initiatives for solely altruistic or paternalist reasons. That's because there is growing recognition that financially stressed employees can be a drag on business operations — and the bottom line.
This is one of the key takeaways from a recent Prudential Financial media briefing in New York City. The gathering brought together a panel of 4 experts, including Prudential executives and affiliated advisors, to explore trends in financial wellness, including best practices that plan sponsors and advisors are instituting to boost employee engagement and financial outcomes.
Reducing the anxiety level
Among these are programs to help employees better cope with financial challenges that, left to fester, could undermine productivity on the job.
“Financial stress is becoming a greater issue for American workers,” said Harry Dalessio, a senior vice president of sales and strategic relationships at Prudential Retirement. “There needs to be a broadening of the workplace conversation to issues beyond retirement — issues bearing on overall financial wellness.”
There’s much to discuss. In a Lockton Companies survey of 401(k) plan participants, nearly half of respondents (46 percent) said they spent between one and three hours dealing with stress-inducing financial issues. Still more concerning: People who had debt were:
200 percent more likely to have issues relating to anxiety or depression;
300 percent more likely to have ulcers or other gastrointestinal issues; and
500 percent more likely to have a heart attack.
To the extent employees are flipping out about how to build a nest egg while meeting other financial commitments — funding a child’s college education, paying down credit card debt or caring for elderly parents — the financial stress can cut into employee output and company earnings.
Hence the growing focus among employers on financial wellness: offering workplace programs to help employees better manage budget issues, eliminate debt, save for unplanned expenses or emergencies and accumulate funds for retirement. The aim of such initiatives, enhanced financials security, can support healthier living.
Healthy living can positively affect financial security, a mounting issue as employers shift greater responsibility for fast-rising health care costs to employees. (Photo: Thinkstock)
Health and financial wellness intertwined
In addition to being better able to cover out-of-pocket medical expenses or take sick time to heal and gain access to the best doctors, financially secure workers also tend to have healthier diets and physical exercise regimes.
Conversely, Dalessio noted, healthy living can positively affect financial security, a mounting issue as employers shift greater responsibility for fast-rising health care costs to employees. Healthier workers also are more likely to avoid a leave of absence due to a physical ailment or disability that can reduce income.
A Prudential white paper cited by Dalessio observes that many employees don’t have disability income insurance, coverage that can replace 60 percent of their salary for a specified period. Absent that protection, the 55 percent of households who report not having enough savings to replace one month of income could face real financial hardship.
“The lines are blurring between financial wellness and physical wellness,” said Dalessio. “This trend will accelerate as advances in predictive modeling tools, as well as financial counseling, allow plan sponsors to have a much deeper wellness conversation than ever before with employees.”
Part of that conversation will need to happen through financial education, most especially during open enrollment periods when employees have a heightened focus on benefits available to them. But corporate communications about wellness initiatives, panelists stressed, can be a sustained, year-round effort, such as through periodic e-mails to remind employees to monitor retirement account balances or boost plan contributions as their finances allow.
Increasingly, employers are also automatically enrolling workers in a 401(k), 403(k) or other defined contribution plans with opt-out options. Many plans also incorporating auto-escalation, wherein the participant’s contribution rate is automatically raised on an annual basis.
There is, however, wide variation in the starting/default contribution rate among employers. The panelists expressed concern that many companies remain wedded to a default rate insufficient to meet employees’ retirement income needs.
“Many plan sponsors have been reluctant to impose an auto enrollment default rate of greater than 3 percent,” said Earle Allen, a partner at Cammack Retirement. “Participants often think, ‘If the plan sponsor thought that was the right number, then it must be so.’”
Participants often don't elect a higher rate unless there is some mechanism to force change, such as auto escalation.
Why aren’t more employers starting with higher auto enrollment rates? Dalessio suggested that companies’ earnings are often a factor. Starting with, say, a contribution rate of 6 or 9 percent could entail a higher employer match. And many plan sponsors may be unable or unwilling to afford the cash outlay.
But businesses could be paying a higher longer-term cost— in lost productivity tied to financial stress or because they’re losing talent to competitors with superior retirement programs — by not electing a higher auto enrollment rate.
Pamela Popp with Lockton foresees a proliferation of in-plan distribution options, such as contingent deferred annuities, offering a guaranteed lifetime income stream. (Photo: Thinkstock)
Impact of the DOL rule
Turning to the Department of Labor, panelists agreed that the DOL’s fiduciary rule will likely result in more employees staying with their plans upon retirement or when changing jobs, a “stickiness” that’s already pronounced among 403(b) participants working for non-profits and educational institutions. One result, said Lockton President of Retirement Services Pamela Popp, will be a proliferation of in-plan distribution options, such as contingent deferred annuities, offering a guaranteed lifetime income stream. The industry may also see greater availability of self-directed brokerage accounts that allow employees to invest a portion of their contributions outside of a plan’s limited mutual fund portfolio.
“Typically, about 75 percent of participants leave their plan within 18 months of departing from their company,” said Popp. “If this changes because advisors will now have to prove that a rollover is in the client’s best interest, then the products and services we offer will also have to change.”
These services, she added, could also include a combination of human and digital or “robo” advice to help put participants on a better path to retirement.
“As plan sponsors think about how to meet the needs of their diverse employee base, they'll have to cover all fronts,” he said. “Some participants will want a personal relationship with an advisor; others will favor digital-only advice or a hybrid of the two... The retirement advice piece is a very important part. But employers will also be leveraging digital technologies to offer more holistic planning, such as budgeting or managing student loan debt.”
Vishal Jain, Prudential’s vice president of strategy and financial wellness, said investments in digital solutions will extend as well to the design of a plan sponsor’s web portals. To the extent they can be made more intuitive and simple to use, the more engaged employees will be. The result: higher adoption of financial wellness initiatives, and planning more in tune with participants’ long-term objectives.
“There's a race among plan sponsors to drive down the number of clicks to make their sites easy and efficient to use,” Jain said. “We’re also seeing greater customization and personalization of plan portals. Employees may see, for example, a different landing page depending on whether they had earlier enrolled, had last visited certain pages or are close to retirement.”
To be sure, increased plan engagement need not hinge solely on cutting-edge bells and whistles. In recent years, Prudential rolled out a retirement income calculator that factors in basic costs and desired lifestyle, in retirement. Among participants who used the calculator in a Prudential survey, plan contribution rates increased on average by 5 percent.
“That's significant,” said Dalessio. “It's all about building and connecting dots in the right way. The calculator is simple and engaging, and actually improves outcomes by getting employees to take immediate action.”
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