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Financial Wellness Key to Addressing Financial Literacy, Hill Panel Told

Witnesses at a U.S. Senate hearing addressed industry efforts to improve financial literacy and offered a number of policy solutions to alleviate financial stress and improve retirement security.

The Aug. 21 hearing by the Senate Health, Education, Labor & Pensions (HELP) Subcommittee on Primary Health and Retirement Security featured a single panel of witnesses who participated in a roundtable discussion on “Financial Literacy: The Starting Point for a Secure Retirement.”

Sen. Michael Enzi (R-WY), the subcommittee’s chairman, suggested in his opening statement that if there was any benefit to the financial crisis, it served as an awakening for many, including employers who recognize that employee financial health can have significant impacts on the productivity. “A person cannot be expected to give 100% when they are trying to resolve their own financial crisis, particularly when they don't have the tools to do so,” Enzi stated.

Financial Wellness Programs

Vishal Jain, a VP in Prudential Financial’s Workplace Solutions Group, addressed employer efforts to address financial literacy through financial wellness programs. “Building upon employers’ recognition of the value of employees’ health wellness over the past decade, there is a growing realization on the part of employers that there is significant value in employees’ financial wellness,” he stated.

Jain explained how Prudential implemented its own financial wellness program and started offering organizations the capabilities to implement their own programs, including solutions to address specific financial wellness needs, such as student loan assistance capabilities and incorporating an emergency savings feature into retirement plans. “Although we are in the early stages of assessing the impact of these programs, we are seeing encouraging results in terms of both engagement and the actions individuals take to improve their financial wellness after engaging with digital and/or on-site financial wellness services,” Jain emphasized.

Lynn Dudley, SVP, Global Retirement & Compensation Policy at the American Benefits Council, similarly noted how employers strongly support financial wellness programs and are taking steps to expand such efforts. She explained how companies are teaming up with their service providers and investment advisors to provide employees with access to retirement planning resources to help employees evaluate their personal financial situation and take steps to improve it.

Dudley noted how one company’s rollout of a retirement checkup resulted in 700 employees signing up for an appointment in the first three days and by the end of the first quarter of 2018, more than 2,700 employees had done so. Additionally, she noted that more than 1,000 employees became new users of the investment advisor’s online advice service and 600 employees received personal advice from an advisor for the first time.

“This company’s innovative partnership with its investment advisor illustrates how employer-sponsored financial well-being programs tied to available retirement plans can be instrumental in helping employees navigate complex financial needs,” she remarked.

Issue Specific

According to Dudley, the areas in which companies are seeking to help their employees include:

  • dealing with their large amount of student loan debt;

  • utilizing educational programs for their children, such as Section 529 plans and other tuition assistance programs; and

  • developing emergency savings funds to help with unforeseen expenses and prevent retirement plan leakage from loans or hardship distributions.

“We strongly believe in a public-private partnership with respect to financial literacy and retirement planning,” Dudley stated, adding that, “we want to be careful of our fiduciary duties, but we also want to be able to offer programs across the country, across state lines.”

During the question-and-answer period, Dudley noted how the recent IRS private letter ruling addressing the ability for employers to make matching contributions to 401(k) plans when a student loan is being paid may help pave the way for more companies to try to help their employees with student debt.

Electronic delivery of retirement plan documents was also raised as an area that employers could enhance their communications. Sen. Enzi noted that Sen. Lamar Alexander (R-TN), who chairs the full committee but was not able to attend, is interested in addressing the issue through legislation. Dudley offered support for e-delivery, saying that employers are ready to embrace it and take advantage of the technology.

Scott Astrada, Federal Advocacy Director at the Center for Responsible Lending, argued that payday lending is a significant problem because it affects retirement savings efforts once consumers become trapped in a cycle of debt. He believes state interest rate caps could help alleviate the problem.

In her testimony, U.S. Treasurer Jovita Carranza explained how the Treasury Department is leading the Financial Literacy and Education Commission (FLEC) and in the coming months will make recommendations on improving federal financial literacy tools. She also noted that the FLEC, which was created by statute in 2003, has a number of overlapping and duplicative programs and the Treasury is seeking to merge these efforts.

Support for RESA

Apart from financial literacy, the issue of existing employees and gig workers not having access to a retirement plan also came up as a key retirement security issue. Both Jain and Dudley offered their support for the Retirement Enhancement and Savings Act (RESA), believing that the legislation would address many shortcomings with existing system.

“In particular, legislation that further encourages and facilitates the use of auto-enrollment and auto-escalation provisions can enhance both retirement plan participation and savings rates. And, provisions that remove impediments to the inclusion of guaranteed lifetime income solutions as part of a retirement plan can better ensure employees have access to the products they need to effectively manage investment and longevity risks during their retirement years,” Jain testified.

Dudley noted that ABC believes the legislation “will reduce costs and make it easier for people to have access, not only for small employers, but individuals who have multiple jobs can treat themselves as if they are self-employed and can participate.”