The Roots of DC Participants’ Stress

Everyone in the DC industry knows that productivity and stress are frequently discussed topics. In fact, it is one of the strongest rationales for offering financial wellness programs. The logic is that workers who are feeling stress are distracted, less productive and less healthy.

And financial issues are a major source of participants’ stress. The National Institute of Health identifies for primary sources of stress:

  • Finances
  • Health
  • Relationships
  • Work

These four sources can be interrelated, with each category affecting the level of stress in the other categories. For example, financial stress can affect relational stress, work stress can affect health stress, and so on. Plan sponsors, recordkeepers and plan advisors all can have a direct or indirect effect on the amount of stress related to finances that participants are experiencing. However, their direct impact on the other forms of stress is limited, with the exception of work-related stress.

To understand the dynamics of how financial stress is created, the National Association of Retirement Plan Participants performed a statistical analysis designed to isolate the factors that increase or decrease financial stress. Specifically, multivariate analyses (i.e., regression models) were used to identify the factors that drive levels of financial stress felt by participants. Interestingly, the models included factors related to the so-called “sandwich generation,” i.e., people who are supporting their parents, grandparents or adult siblings in addition to their own children.

Predicting Participants’ Financial Stress Levels

The question used to measure financial stress was: “How would you describe the amount of stress you feel when you think about your financial situation?”

Twenty-three factors thought to affect stress were used in this analysis. The model overall was highly predictive of stress, explaining a significant proportion of the differences in reported stress among participants.

Factors That Reduce Financial Stress

The strongest factor determining stress was the sense of feeling comfortable about planning for retirement. That is, the more comfortable one is with retirement planning, the less stress he or she feels.

We have seen in other models that financial planning increases one’s sense of control over their financial life, and greater control reduces stress. This is clearly a controllable form of stress that can be addressed by advisors’ direct contact with participants or indirectly through financial wellness programs. Furthermore, the degree of control participants feel they have upon your finances, and life in general, directly impacts their sense of well-being overall and specifically in their financial lives. In fact, a sense of control is the key element that participants use to describe financial wellness.

As we’ve seen frequently, financial wellness is not a demographic. Rather, it is a psychographic that describes a person’s sense of well-being when they think about their finances. For example, two people with the same annual income can have vastly different levels of financial wellness. Similarly, two people with the same income replacement ratio can also can have very different levels of financial wellness and different lifestyles in retirement.


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Participants often described financial wellness as the freedom to make decisions that don’t necessarily maximize their income, but rather maximize their sense of mission and significance. They often also describe financial wellness as the freedom from the slightest negative event (e.g., a fender-bender or car breakdown) putting their financial life into deep crisis.

Other variables that reduce stress were also related to control (i.e., less uncertainty) over the future, including:

  • 401(k) account balance. (The higher the balance, the lower the uncertainty about being able to retire, a major concern among participants. However, expressing the balance in terms of the monthly income the balance will produce in retirement is a more comforting way to show the data.)
  • Being comfortable managing money. (The greater the level of understanding and comfort with money, the greater sense of control over their financial life.)
  • Trust in the employer to do the right thing. (A sense that you can rely upon your employer to do the right thing and to be forthright is a great comfort to participants.)
  • Knowing the amount of fees associated with one’s retirement account. (Having more information about what something costs generally reduces stress.)

Factors That Increase Financial Stress

The analysis also identified the largest factors in increasing stress. Here is where the analysis showed the impact of having to support adult family members:

  • The participant’s amount of total debt. (Not surprisingly, a greater debt burden relative to income significantly increases financial stress.)
  • The number of family members for whom they provide financial support. (Not only does this create stress due to a greater economic burden, having to care for family members can have the effect of reducing one’s sense of control.)
  • Having to tap into savings to support adults. (Related to the previous factor, having to actually reduce one savings balances to support another adult further reduces sense of control.)
  • Having to delay retirement to support adults. (If the ultimate result is having to delay retirement to support other adults, stress levels increase significantly.)

Factors That Do Not Affect Financial Stress

Sometimes it is just as interesting to look at the factors that do not drive financial stress. Most notably, the two factors that were not associated with higher or lower financial stress were:

  • Years of education
  • Household income

Predicting Participants’ Trust in the Employer

Since trust in the employer is a significant driver of stress, an analysis was performed to identify the factors that affect trust in the employer. The question used to measure employer trust was: “How much of the time do you think you can trust your employer to do what is right?”

The model overall was also highly effective in determining the factors driving employer trust, explaining a significant proportion of the differences in reported trust among participants. Financial stress was included in this model as a potential factor in employer trust.

Factors That Increase Employer Trust

Interestingly, the strongest factor driving greater employer trust was the participant’s total amount of debt. That is, respondents with higher levels of debt trusted employers more. The direction of causality is not known, but it may be that participants who are more trusting in their employer feel more confident in taking on more debt. Other factors increasing trust are listed below. Importantly, all these drivers are in the control of the employer through financial wellness programs, including effective education and tools for participants:

  • Feeling comfortable with financial planning for retirement
  • Knowing the amount of the management fees for their accounts
  • Calling the recordkeeper’s representatives more frequently
  • Feeling more knowledgeable about financial matters
  • Knowing the amount of savings required for retirement
  • Feeling comfortable managing money

Factors That Reduce Employer Trust

Lower levels of employer trust were associated with:

  • higher levels of financial stress (i.e., financial stress can have multiple levels of negative impact, including reducing trust in the employer); and
  • being older (i.e., older employees tend to have lower trust in their employer).

The analysis showed that overall, many of the factors driving financial stress can be affected in large part by the plan sponsor, the recordkeeper and, most importantly, the advisor. Clearly, the advisor can play a substantial role in improving the level of financial wellness. This is an important potential value-add of advisors that should not be overlooked.

Warren Cormier is the Executive Director of the DCIIA Retirement Research Center and President and CEO of Boston Research Technologies. He is the author of the DCP suite of satisfaction and loyalty studies, and cofounded the Rand Behavioral Finance Forum with Dr. Shlomo Bernartzi. This column originally appeared in the Summer issue of NAPA Net the Magazine.

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