While a lot of progress has been made in helping people save more for retirement, there are still a lot of concerns that go beyond the retirement plan that can have negative effects in the workplace, according to a Sept. 10 workshop session at the 2020 NAPA 401(k) Cyber Summit.
Even though more people are getting into plans and saving more through automatic plan features and ongoing educational efforts, 17% still expect to run out of money in retirement, nearly a quarter of wages go to consumer debt payments and two out of three people don’t have enough savings to cover an emergency expense, explains Stuart Ritter, Retirement Insights Leader with T. Rowe Price.
“These concerns that go beyond the retirement plan; they’re having an important result and it’s a negative one—two out of three people say finances are the largest source of stress in their life and one out of two avoid dealing with that financial situation,” he says.
As a result, employers are finding that—beyond the actual physical effect—personal financial issues are impacting employee job performance, which can have significant implications for the bottom line. Citing earlier studies, he notes that four out of five employers report that personal finance issues are impacting employee job performance, and 11 to 14% of payroll expenses are going to lost productivity because of financial distractions.
Why Offer It
And this is where financial wellness comes into play, says Ritter. “It’s the idea that if you could help people plan, not only for their own retirement, but in a way that helps them achieve their long-term and short-term goals to manage their money in a way that helps them achieve the things they want to achieve, that anxiety comes down, the confidence goes up and their ability to focus on things other than their finances goes up.”
As to what financial wellness encompasses, Ritter explains that it’s a variety of things, with one end of the spectrum defining it simply as education around retirement planning, while the other end entails full one-on-one certified financial planning. “And the way I encourage you to think about it is—it means financial wellness has a tremendous amount of flexibility; as you’re talking to folks, you can customize what financial wellness means in a particular environment for a particular organization.”
Citing the results of various programs, Ritter notes that in one case healthcare costs went up by 19% for people who were not in the financial wellness programs, but went down by 5% for those who were in the program. In another example, he notes that nearly 40% of financial wellness program participants are saving 15% of their salary for retirement, emphasizing that the benefits can be profound, both for the individual and the organization.
The Opportunity
So why offer it as a financial professional? Ritter believes there’s a sizable opportunity, with 94% of employers saying they are focused on financial wellness, but only 35% have a program in place, according to data by Alight. “A lot of folks are talking about it, but two out of three do not yet have a program in place—maybe they don’t know where to start, maybe they don’t know what financial wellness means and that’s the opportunity for you to come in and start having a conversation with something that the 94% tells us is already on their mind,” says Ritter.
Offering a program can also help differentiate your practice and, in turn, can lead to improved retention and referrals, he says.
When thinking about how to identify candidates, Ritter suggests looking at an employer’s corporate philosophy, the existing characteristics of their retirement plan and the employee demographics.
“Number one, think about their primary reason for offering benefits, because sometimes it’s just, I gotta have a box checked and that’s the whole commitment I’m making to it. For other folks, it’s the standard recruit, retain, reward approach,” he notes.
Also consider how much the employer wants to spend in terms of effort to help their employees and do they see the relationship with the employee as providing all kinds of benefits to help them be more successful in a variety of areas. If the paternalism is higher, the employer may be more interested in offering a financial wellness program, he emphasizes.
An employer’s plan characteristics can also give you an indication as to whether a financial wellness program can benefit a particular organization. Ritter suggests looking to see whether an organization’s employees are retiring on time with enough savings or does the plan, for example, have older employees who want to retire, but haven’t saved enough to do so. “If you have a number of people in that category, instituting a financial wellness program can address some of the questions that are on the minds of these folks,” he suggests.
A second thing to look for is opt out rates. Ritter explains that if there’s a plan with an inordinately high percentage of people opting out, that might be an indication that they’re having some financial difficulty outside the plan and an area that a financial wellness program could help address. “A financial wellness program would provide an opportunity for them to get education tools and resources that help them stay focused on their job and the other things they want to do in their lives and less on having to deal with whatever financial stressors they might have encountered,” he notes.
As to the considerations for selecting a provider, Ritter suggests first looking at what it is going to cost for a particular program and what ongoing support is available from the employer. Other considerations include:
- what kind of business model a financial wellness program has;
- how the communication works and how it integrates with what the employer is already communicating about their benefits;
- what multimedia resources are available; and
- what the data reporting capabilities are in terms of measuring performance and outcomes.
