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Building a Bottom Line on Financial Wellness

In my experience, two big plan sponsor questions loom over financial wellness.

The first – and this one gets answered many ways – is “what do you mean by financial wellness?” The other – and there’s some correlation with the former is – what’s the ROI?

The quantification of return remains somewhat elusive – so much depends on the type and depth, and even length of the financial wellness initiative(s). But after some searching, I’ve put together a working list of the ways in which financial wellness might pay off for an employer, drawn heavily from a report by Financial Finesse (which, admittedly, is in the business of providing those services) and PricewaterhouseCoopers (which consults with employers on providing these services).

What Is Financial Wellness?

The most balanced assessments of financial wellness speak both to current and long-term health of finances, and include both a cognizance of financial terms (a.k.a. literacy), but more importantly a demonstrable application of that knowledge to their current circumstances. The latter is generally evidenced by some kind of emergency savings set-aside, as well as competent management/maintenance of debt. As for the longer-term, increases in financial wellness appears to be related to assessing retirement readiness, rebalancing retirement investments, and/or taking a risk assessment test.

So, what kind of difference does that make? Well, following are the major areas in which financial wellness is said to reduce employer costs – and, courtesy of the folks at Financial Finesse – some quantification as to that impact.

More Productive at Work

A recent report by PricewaterhouseCooper finds that not having enough emergency savings is workers’ main concern, and 77% of those who are stressed say that level has increased over the past 12 months. Half (50%) say they are spending three or more hours each week dealing with personal financial issues.

So, take the number of workers, divide by half, multiply hourly rate by 3.

Less Absenteeism

PricewaterhouseCoopers says that 12% of employees admit to missing work occasionally due to financial worries. So, that amounts to a reduction in absenteeism from 13.73 hours to 10.35 hours, times their pay, times the number of workers.

3 hours/week x 46 average workweeks/year x # workers x worker pay

Less Garnishment

Financial Finesse found that for every level of improvement in an employee’s financial wellness score, there is a decrease in the likelihood of garnishments (from 4.80% to 1.84% when moving from a financial wellness score of 4 to 6 on the organization’s scale). Moreover, they cite an average $300 annual cost to process garnishments.

Take your current rate of garnishment, cut it by a third, and multiply it by the cost of processing garnishments ($300).

FICA Savings

Admittedly this one is a bit more in the weeds, but – should the shifts in behavior manifest themselves, it can add up. Financial Finesse says that an increase in financial wellness scores produces steady increases in contributions to flexible spending and health savings accounts, and that the average combined contribution to a flexible spending and health savings account increased from $905.55 to $1,137.50 (once again, with an improvement in financial wellness from 4 to 6 on the organization’s scale). Since contributions to flexible spending and health savings accounts are not subject to Federal Insurance Contributions Act (FICA) tax, an increase in participation could boost an employer’s bottom line.

This calculation I’ll leave to you.

Health ‘Wealth’

Roughly a quarter (28%) of workers say that their health has been affected by financial worries. While it can be hard to put a price tag on that, Financial Finesse cites a 2013 study of a Fortune 100 health care company found that employer health care costs associated with employees who used the company’s financial wellness program actually decreased by 4.5%, while the costs associated with employees who never used the program increased by 19.4% – a gap that they say adds up to $271/employee.

Take $271 times the average number of employees.

Retiring on Time

Somewhere between the claiming dates for Social Security and the traditional retirement age of 65 incorporated in many pension plan designs, American workers (and their employers) have developed a certain expectation around “normal” retirement age. And yet, worker sentiment amidst the prevalence of defined contribution plans has been a growing expectation that workers would extend their tenure, continuing to work…longer. This despite the reality that indicates that delayed retirement – either by choice or not remains a relative rarity.

That said, one of the more compelling “workforce management” claims for financial wellness is that by helping assure that workers are prepared to retire “on schedule,” not only does it help employers better manage transitions, it also represents cost savings for employers for those workers who tend to be higher paid, have longer vacations, and bring with them higher health care costs.

As you might expect – and as Financial Finesse notes – as employees’ overall financial wellness levels increase, so do their retirement plan contribution levels, and that, in turn, reduces the likelihood of delayed retirement. In fact, for younger employees (who have longer tenures to accumulate and compound their savings), Financial Finesse says that improved financial wellness could increase lifetime retirement savings by as much as 12% to 28%.

Ultimately, they estimate that the increase in financial wellness produces a 13% improvement in savings.

Take the 13% times percent of workforce retiring annually times $10,000 annual savings times the number of workers.

Less Turnover

Since the financial wellness program is expected to enhance the perception of benefits, not to mention the utilization, Financial Finesse suggests that one might well expect a reduction in turnover. How much? Well, they provide an example that assumes a 1% reduction in a company that has a 10% turnover rate.

Simplistically, the calculation looks like:

Projected reduction in turnover times current turnover rate times the estimated cost of replacing a worker times the number of employees.

Now, the above provides a rough schematic as to how you might go about quantifying the impact of financial wellness. Your results may, of course, vary, based on any number of things.

It is perhaps also worth noting that the return on your investment may well depend on the investment made in the program, and over what period of time.

Editor’s Note: the calculations detailed above are derived from external sources, and have not been independently verified. The applicability of those assumptions to companies of various sizes and demographic mixes may vary.