Who Wants Financial Wellness?

You might have missed it (I nearly did), but January has been declared “National Financial Wellness Month.”

The designation (apparently, it’s been so designated since 2011 or thereabouts) is meant to create a time where we’re all encouraged to pay closer attention to our financial well-being. Which, considering that we’ve just emerged from a season of what for many is one of “overspending,” January seems either a good time — or perhaps two months too late.

Seriously, while the numbers are modest, surveys (conducted primarily by those promoting or supported by promoters of those services) routinely show that some workers want[i] —  and even expect —  financial wellness type support from their employers. Not surprisingly, there are employers willing to accommodate this assumption, though —  depending on employer size, location, and source —  fewer than half do, with larger employers notably more likely to do so. And that’s with a truly fluid definition of what those services actually entail.

But do these programs actually work? The data —  and measurement —  is murky, to say the least.

The challenge starts with the fluid definition of what constitutes a financial wellness “program,” is further muddied by varying degrees of employer support, and ultimately compounded by (widely) varying means of measuring “success.” 

A recent survey by the Employee Benefit Research Institute (EBRI) found that the top factor in measuring the success of financial wellness initiatives was improved overall worker satisfaction, followed by increased employee productivity —  areas that might well benefit from financial wellness initiatives but are arguably influenced by a wider range of factors. 

Meanwhile, bottom-line measures such as reducing health care claims and costs were NOT commonly cited as top factors in measuring the success of financial wellness initiatives.

Little wonder that any kind of quantifiable ROI remains…elusive[ii].

But another —  and perhaps larger —  challenge remains: utilization. Transamerica recently reported that a consortium of industry experts[iii] only expects utilization by a third of individuals with access to those programs – despite their decades-long existence.  And that’s a future projection, supported by AI chatbots and the like in addition to human support.

ad space

Indeed, despite the headlines proclaiming interest — it doesn’t take much effort to see that the surveys are finding an INCREASE in (modest) interest, rather than a commanding demand.

More’s the pity since there’s any number of signs that suggest American workers really need (if not want) the kind of financial guidance and help that these programs ostensibly could provide —  and not much sign that they’re inclined to seek it outside of the workplace[iv].

So, who wants financial wellness —  well, it’s hard to imagine someone who doesn’t, though they might not recognize it by that label or appreciate what it means.

Here’s hoping that THIS financial wellness month we’re able to help more folks both know about, and take advantage of, the available programs —  that we do a better job of defining what those programs are and can mean — and that the combination leads to more and better financial security for working Americans.

-          Nevin E. Adams, JD

 

[i] According to Bank of America’s 2025 Workplace Benefits Report (PDF), conducted in partnership with Bank of America Institute, 26% of the workforce is seeking help in areas such as emergency savings, paying down debt, and overall financial wellness, compared to 13% in 2023.  

[ii] But for what I still maintain is an interesting exercise, check out Building a Bottom Line on Financial Wellness.

[iii] Full disclosure – I’m among this group.

[iv] Setting aside the obvious concerns of the kind of help they might stumble into on their own.

5 New Year’s Resolutions for 401(k) Plan Fiduciaries

This is the time of year when resolutions for the cessation of bad behaviors and the beginning of better ones are in vogue. Here are three for plan fiduciaries for 2023.

Develop a plan budget.

Most financially-focused New Year’s Resolutions focus on spending (less) or saving (more)—and the really thoughtful ones do both—all tied around the development of a budget that aligns what we have to spend with what we actually spend. 

Most (many?) plans have a budget when it comes to the expenditures that require corporate funding.  Less clear is how many establish some kind of budget when it comes to what participants have to spend.  Now, granted, what they pay will vary based on any number of …variables—but an essential part of ensuring that the fees paid by the plan (for the services provided to the plan) is knowing how much—and for what. 

At some level that means not only keeping an eye on things like expense ratios, the options with revenue-sharing, and the availability of alternative share classes (or options like CITs)—but it also means having an awareness not only of the plan features, but the usage rates of those plan features.

Because when it comes to retirement plans, there often IS a direct link between spending less and saving more.

Put your fund menu on a diet.

Though it is a point often made with studies (well, one frequently cited study, actually) dealing with jellies and ice cream, a long-standing behavioral finance tenet is that more choice doesn’t lead to better decisions. So, what’s with those (still) burgeoning 401(k) investment menus? The 65^th annual Plan Sponsor Council of America’s Survey of Profit-Sharing and 401(k) Plans found that more than a quarter of plan sponsors offer 26 OR MORE options, while another 18% offered 21-25, and 27% offered 16-20.

Odds are that there are funds on the current menu that either aren’t being used or aren’t being used widely—options that contribute little other than clutter to your investment review and to the decisions of your participants.

Take a look—your retirement plan menu shouldn’t be a kitchen sink “solution.”

Check-up—on your target-date fund(s).

Flows to target-date funds (TDF) have continued to be strong—and little wonder, what with their positioning as the qualified default investment alternative (QDIA) of choice for most 401(k)s. That said, the vast majority of those assets are still under the purview of an incredibly small number of firms—with glidepaths that are not as dissimilar as their marketing materials might suggest. 

A TDF is, of course, a plan investment, and like any plan investment, if it fails to pass muster, a plan fiduciary would certainly want to remedy that situation, including removing the fund if necessary (don’t take my word for it—that’s coming straight from the Labor Department).  

That said, TDFs are frequently, if not always, pitched (and likely bought) as a package. While each fund in the family is reviewed separately, and certainly should be, breaking up the set certainly carries with it a series of complicated consequences, not the least of which are participant communication issues and glide path compatibility. Not that those can’t be overcome—and not that those complications would be deemed sufficient to retain an inappropriate investment on the plan menu—but it doesn’t take much imagination to think about the heartburn that might cause.

The reasons cited behind TDF selection run a predictable gamut; price/fees, performance (past, of course, despite those disclaimers), platform (as in, it happens either to be their recordkeepers, or compatible with their program)—and doubtless some are actually doing so based on an objective evaluation of the TDF’s suitability for their plan and employee demographics. 

Whatever your rationale, it’s likely that things have changed—with the TDF’s designs, the markets, your plan, your workforce, or all of the above. 

Pump up the default rate in your auto-enrollment plan.

While a growing number of employers are auto-enrolling workers in their 401(k) plan, one is inclined to assume that, a decade and a half after the passage of the Pension Protection Act, if a plan hasn’t done so by now, they likely have some very specific reasons.

But for those who have already embraced automatic enrollment, those are plans who have (apparently) overcome the range of objections; concerns about paternalism, administrative issues, cost—some may even have heard that fixing problems with automatic enrollment can be—well, problematic (though things have gotten a little easier on that front).

There has been movement here over the years—indeed the most recent PSCA survey found that two-thirds (65%) of plans with automatic enrollment set the default deferral rate high enough so that participants receive the full possible company matching contribution, up from 57.1% as recently as 2020. In fact, the most common default rate for automatic enrollment plans is now more than 6%. 

Set goals for your plan designs.

The mantra about retirement benefits has always been that they exist to help attract and retain good workers. More recently, a reimagined emphasis on financial wellness has offered some nuance to that—to provide better levels of engagement while they are working, to forestall the “distractions” (and potential malfeasance) that financial stress can engender, and ultimately to help workers retire “on time.” These goals are not inherently incompatible, but at any given point in time they require differences in communication, education, emphasis, and potentially program design.  

There is, by the way, a sense of a shift in such things. While the primary goal of participant education has historically been to increase participation rates, the Plan Sponsor Council of America’s 65^th Annual Survey of Profit-Sharing and 401(k) plans notes that in 2020 that shifted to increasing financial literacy of employees in 2020—a shift that held in the most recent survey with 77.4% of organizations now stating that as their primary educational goal. The secondary goal was increasing appreciation for the plan (likely as a retention method) followed by providing retirement planning to employees. The percent of organizations offering financial wellness programs increased to 27%, including more than half of large employers.

If you haven’t revisited those objectives in a while—or, heaven forbid, have never done so—there’s no time like the present for a reset. After all, as Yogi Berra once commented, “If you don’t know where you’re going, you might wind up someplace else.” 

- Nevin E. Adams, JD

The Big(ger) Picture

Our industry often seems to treat participants like children who can’t make big decisions—but a recent research paper suggests they might make better choices if we expanded their perspective.

The paper, intriguingly titled “Financial Wellness Meets Behavioral Economics,” highlights a behavioral tendency known as “narrow framing”—basically a tendency to focus on one complex choice, or one element of a complex choice, at a time.  Now, at first blush this seems rational, and perhaps even prudent—but the paper suggests that this kind of linear thinking means that people are inclined to overlook real-life disruptions like financial emergencies—which are not only uncertain with regard to amount or timing, but even in terms of whether they will occur at all. Little wonder, therefore,  that studies routinely find that workers say they are ill prepared to come up with the funds to cover some kind of short-term emergency outlay of $400.

This particular e paper—authored by none other than Shlomo Benartzi, Professor Emeritus, UCLA Anderson School of Management and Senior Academic Advisor at Voya Financial, which published the paper—explains that “when it comes to household financial planning, the ‘one future’ fallacy often leads people to focus on predictable and recurring expenses, such as rent and the monthly phone bill.” It cites research by Abigail Sussman and Adam Alter that finds that people struggle to budget for any kind of “exceptional expense,” whether it’s a summer vacation or a new television. Since these expenses are not recurring, and most household budgets are narrowly framed around regular monthly charges, people fail to consider them as part of their financial plan. So far, so good.

The paper’s ultimate premise seems to be that if people could see the full range of their financial needs, they could do a better job of allocating funds—that, among other things,  they’d make more rational health care decisions if they were presented a full integrated cost impact of a plan with premiums and deductibles (the author suggests most focus on the deductible). In short, the paper suggests that we (advisors and the retirement industry generally) need to do a better, holistic job of helping individuals see the full range of options and alternatives, work with them to choose the most optimal—and, of course, make it easy for them to act, rather than defer acting on those choices.

Or, said another way (as the paper does), “the ultimate goal is to develop a data-driven financial wellness platform that helps people better allocate their scarce dollars.”

Now I don’t doubt for a minute that people “overlook” budgeting for emergency expenses because they don’t view them as a specific reality (I also figure that many don’t because they feel they have other, better uses for that money, including perhaps “eating”). In that sense, creating a “slot” for emergencies alongside the budgetary savings/spending slot for “retirement,” rent, food, and transportation is logical in both acknowledging the potential need alongside those that tend to be seen as “must-pays.”   

I’m not altogether sure, however, that an unspecified emergency (and approximated cost) will warrant the appropriate attention—and more than a little concerned that if it did, it would do so at the expense of items that feel more “discretionary” (like retirement).[i] And while this may be old-world thinking, I’ve seen (and heard of) far too many situations where giving people not only lots of decisions to make, but forcing them to come up with “answers” for all of them might well produce a misallocation of resources—or in a worst-case scenario, forestall a decision of any kind whatsoever.   

So from an academic perspective, “narrow framing” might well be a “bad behavior” that precludes “rational” decision-making, though I tend to see it more as a coping strategy for folks struggling to make complex financial decisions spread across limited means. But then I’d also argue that sometimes you need to make choices that, while perhaps deemed financially rational, aren’t necessarily the ones you need to make in order to sleep at night.

Thoughts?

- Nevin E. Adams, JD

---

[i] I am, however, convinced that the positioning of health care programs/options/expenses could do with some improvement.

Does Financial Wellness (Still) Need an ROI?

The ROI for financial wellness has always been elusive—but a new survey suggests that it might not matter.

Asked “Why are you creating or expanding your financial wellbeing program?”, respondents to Alight’s 17th edition of Hot Topics in Retirement & Financial Wellbeing said that not only was financial wellness their top priority, more than half (56%) said that the importance of financial wellbeing has increased at their organization over the last two years, and none said the focused has decreased. 

But—asked why they were creating or expanding their financial wellbeing program, the respondents largely ignored the traditional ROI metrics. The most common answer was nothing more concrete than to “enhance the overall employee experience (85%), and right behind that was the simple proposition that “we believe it is the right thing to do (84%). Even HR’s traditional favorite—“increase employee engagement”—at 72%—was well behind those arguably subjective gauges. 

“Engagement” isn’t exactly a new measure—but even that requires equating employee utilization with a return of value to the organization’s bottom line. It’s not that it doesn’t have value, but it’s darned hard to quantify. Indeed, some experts argue that we shouldn’t even try.

Goals Posts

Well down the list for these plan sponsors were common goals such as improved retirement statistics (e.g., improved adequacy, decreased leakage, higher participation rate), cited by fewer than half (49%), or the traditional “to increase attractiveness and/or differentiate ourselves as an employer,” which was identified by just 47%. The goals that many early advocates of financial wellness had touted—to “decrease employee time spent addressing financial issues (either on the job or through absenteeism)” was mentioned by just 43%, and as for “decreased medical costs”—a mere 14% indicated that was a rationale. Nor was it a matter of responding to worker interest—just 38% cited employees asking for these types of benefits as a factor.

Don’t get me wrong—it’s not as though there haven’t been attempts made to quantify the return on the time and monetary investment in these programs, certainly by the firms that promote these services—but getting to those results generally involves adopting not just the methodologies, but the calculus employed in assigning value to those results. 

Measure ‘Meants’

Despite the well-intentioned efforts of many, financial wellness remains one of those concepts that is still, largely anyway, (just) a concept—one with varied definitions, inconsistent applications, and disparate providers—and thus one that is notoriously frustrating to assign a dollar value[i] to—other than the cost of such programs, which when, done properly, we’re assured, costs money.

In fact, asked how they intended to measure the results of their financial wellbeing program, far and away the most common response—cited by 85%—was employee usage of benefits. As metrics go, it’s certainly an important one—because if the program isn’t being used, there can be no real impact. That said, the kinds of impact that have been more commonly associated with a quantifiable ROI—improvements in retirement statistics (55%), medical costs (e.g., health care, disability, workers compensation) (12%) and reductions in absenteeism (5%)—followed distantly. Even employee engagement—as noted earlier, a notoriously difficult aspect to quantify—was cited by only about half (52%) of plan sponsors—and 6% admitted that they did not intend to measure the results of their program.

Now, these survey results are drawn from a relatively small group of relatively large plan sponsors: 116 of them, albeit with a median employee base of 19,300 (average of 47,000). On the other hand, the patterns at evidence among larger employers have long been seen as a something of a precursor for what will eventually take hold “downmarket.” 

What remains to be seen is whether the apparent diminution of focus on traditional ROI measures among these plan sponsors suggests that those contributions to the bottom line were always illusory—or perhaps that they weren’t a necessary affirmation of the pursuit of financial wellness after all. 

- Nevin E. Adams, JD

---

[i] That said, a couple of years back (see Building a Bottom Line for Financial Wellness), I was able to cobble together a formula of sorts, that looked something like “Projected reduction in turnover times current turnover rate times the estimated cost of replacing a worker times the number of employees.” That said, while it’s a calculation with discernable variables, those are still fraught with “fill in the blank” assumptions. 

‘Still’ Standing: 6 Key Industry Trends to Watch

The Plan Sponsor Council of America recently released its 62nd Annual Survey of Profit-Sharing and 401(k) Plans, documenting a record high rate of savings, alongside an uptick in Roth contributions and other trends. However, sometimes the things that don’t change can be just as telling…

Target-date trends (still) dominate, but… 

Let’s face it – target-date funds are one of the most common items on a plan investment menu today (the PSCA survey noted that it’s the option in which assets are most frequently invested) and – in no small part due to their prevalence as a default investment alternative – continue to garner a lion’s share of new contribution dollars, if older savers (perhaps more precisely, longer-tenured savers) haven’t embraced (or more accurately, been defaulted into) the option with as much enthusiasm. That said, while more than two-thirds (68.6%) of respondents offer a target-date fund option, that’s actually down 5% in the past two years.

Interestingly enough, the PSCA survey found a rough 50-50 split among respondents between those relying on target-date fund glidepaths that are “to” versus “through” retirement. Additionally, actively managed TDFs outnumber passive by more than two-to-one among plans with fewer than 5,000 participants. That is reversed among plans with more than 5,000 participants.

Robo-advice (still) isn’t making much headway.

Just 1 in 10 (10.9%) of plan sponsor respondents provide participants with access to a robo-advisor, and if that’s somewhat higher (approximately 15%) among larger programs, the vast majority do not.

However, it may be worth noting that 15.6% who don’t currently say they are considering the option, particularly among smaller programs – though in last year’s survey, that was 17.2%.

Automatic enrollment (remains) a large-plan feature.

Fewer than a third (30.5%) of the smallest programs offer the feature, and only about half (56%) of plans with 50-199 participants, compared with roughly three-quarters among larger programs. On the other hand, roughly a decade ago – when the Pension Protection Act of 2006 was new – only about a third (35.6%) of respondents to the PSCA survey offered automatic enrollment. But then, it’s now been a decade… 

Not that it’s not been considered – but asked why those that didn’t offer the feature had made that choice, the predominant reason given was satisfaction with participation rates.

However, among the largest (> 5,000 participants), the most cited rationale was… cost.

Once participants are enrolled, they (still) tend to “stick.”

The percentage of participants who opt out of automatic enrollment programs in private sector retirement plans has always been relatively small, generally 5-10%, and in this year’s PSCA survey some 70% say that the opt-out rate remains 5% – or lower.

That stands in some contrast with the data we have seen with the early state-run plan options, where the opt-out rate has been in the 25% and higher range, though those programs lack an employer match and the nurturing that employment-based plans typically provide. And, arguably, the 75% who “stick” there are better off than with no plan at all.

Financial wellness is (still) largely a large plan feature. 

While nearly half (45.8%) of the largest (5,000 or more participant) programs claim to have a “comprehensive financial wellness program,” only about a quarter (27.1%) of those with 1,000-4,999 participants do, as do only 22% of those with between 200-999 participants.

For all the coverage that the subject engenders – and it’s considerable in this space – it’s not unusual to find awareness and interest gaps among plan sponsors, with perspectives ranging from ignorance to ambivalence to downright skepticism, even among large plan sponsors. The data here (and in other surveys of plan sponsors) suggest that the concept/focus is far from universal.

Traditional success measures (still) dominate.

Participation rates remain the dominant success measure of plans of all size: 87.6% overall, and more than 95% of the largest programs, cite that benchmark. Deferral rates rank second – 75.8% overall, but higher among larger plans, with average account balances a distant, but (to my eyes, anyway) a remarkably robust third.

For all the talk about an expanding focus on outcomes, income replacement ratios are a distant fourth, although 42% of the largest programs (those are the ones with the financial wellness programs, after all) do track this benchmark. Of course, particularly with a voluntary approach to retirement saving, employers may well be hesitant to establish as a benchmark of success the attainment of a goal that is not only unique to each individual, but generally outside of their ability to control or influence.

Though we can hope that participants – who do have some control over that outcome – are paying attention.
Industry surveys, particularly those with a broad range of plan types and providers and the perspective of decades that PSCA’s survey spans, provide an invaluable sense and appreciation of not only where things stand, but also how far we’ve come.

And sometimes, even when the trend is more or less status quo, and perhaps even more so, their real value lies in helping us see where we need to be.

- Nevin E. Adams, JD
 
More information about the Plan Sponsor Council of America’s 62^nd Annual Survey of Profit Sharing and 401(k) Plans is available at www.psca.org.

What’s Holding Back Financial Wellness?

Financial wellness – it remains a hot topic among advisors – but among plan sponsors?

For all the coverage that the subject engenders – and it’s considerable in this space – it’s not unusual to find awareness gaps among plan sponsors, with perspectives ranging from ignorance to ambivalence to downright skepticism.

About a year ago, the Employee Benefit Research Institute (EBRI) conducted a survey of 250 large employers. At the time, the report claimed that while many employers were interested in offering financial wellness programs to their employees, there didn’t appear to be a consensus on the approach.

So, what’s changed in in the past year? Well, as it turns out, not much.

Once again EBRI surveyed large plan sponsors – this time in June 2019, the online survey of 248 full-time benefits decision-makers from companies with at least 500 employees (17% had more than 10,000). Last year’s survey canvassed employers with an “expressed interest in financial wellness initiatives” – and the 2019 version also notes that a “key criterion for participating in the survey was that employer respondents were screened to ensure that had some interest in offering financial wellness initiatives.”

Fertile ‘Grounds’?

And yet, even among a group that would seem to be fertile ground for these programs:

• Only about half report currently offering financial wellness initiatives (about the same as a year ago) – and though 20% say they are actively implementing and 29% interested in doing so – that’s also about the same as a year ago.
• Only one in four (23%) have created a score or metric. 
• Only a third (32%) have done a financial wellness needs assessment

Moreover, making a business case to management surged as a challenge for the programs, cited by 42% of respondents from 24% in last year’s survey. Little wonder since “Lack of Ability/Data to Quantify Value Added of the Initiatives” was cited as a top challenge by 41% of respondents, compared with 25% a year ago. And then there was “Lack of Staff Resources to Coordinate/Market Benefits” – cited by 43% of respondents, versus 27% in 2018.

Ultimately, there’s (still) apparently no real consensus around the definition of financial wellbeing; about a third defined it as (just) having access to assistance and resources that enable good financial decisions, about one in five (21%) defined it as (just) being equipped to achieve retirement security through planning and savings. Only 3 in 10 defined it as (actually) being comfortable or financially secure overall.

Of course, some of that (apparent) ambivalence might be explained by the reality that 29% of respondents describe their level of concern about employees’ financial well-being as “low” (another 49% say they have a “moderate” level of concern).

Or perhaps it’s the reality that while two-thirds (68%) of employers said that more than half of their employees were eligible for the financial wellness initiatives provided, only one-third (36%) of employers thought that a majority of their employees would actually make use of the benefits.

In fact, the top two challenges in offering financial wellness benefits were a lack of interest among employees (38%, compared with 43% a year ago), and complexity of the programs. This year the survey took that complexity question and found that while (just) 31% were concerned about the programs being complex for employees that utilize them – most of the concern had to do with complexity for the employer; just over a quarter (27%) cited complexity in implementing programs, and another quarter (25%) cited complexity in choosing the programs. Employers, it seems – even those with a propensity to consider these offerings – (still) find the (potential) complexity daunting.

Don’t get me wrong. The logic behind these programs is pretty straightforward; it’s about staving off bad financial health, which contributes to (and/or causes) a bevy of workplace woes: stress, which can lead to things like lower productivity; bad health and higher absenteeism; and even a greater inclination toward workplace theft, not to mention deferred retirements by workers who tend to be higher paid and have higher health care costs. It’s a here-and-now focus that speaks to the bottom line, even if the modest amount of academic research on the subject still struggles to make a quantifiable case.

But, at least in the EBRI survey results, it seems as though even the most engaged plan sponsors still don’t quite get it.
And until they do, they won’t.

- Nevin E. Adams, JD
 
See also: “What Plan Sponsors Want to Know About Financial Wellness,” “Building a Bottom Line on Financial Wellness,” and “8 Things to Know About the State of Financial Wellness.”

‘Likely’ Stories

It is customary when sharing (or reading) the portents of a survey to focus on the actions that respondents say they have, or will undertake. But what about the things they say they will not do?

Human beings gravitate toward “norms,” of course. Plan sponsors, certainly those conscious of the personal liability that accompanies those responsibilities, can hardly be blamed for seeking the behavioral norms of their profession, drawing comfort from the collective movement of the “pack,” particularly with new and/or controversial ideas.

Large ‘Charge’

This past weekend I was reviewing Alight Solution’s 2019 Hot Topics in Retirement and Financial Wellbeing report. But, while the positive trendlines on things like financial wellness were interesting, what struck me in reviewing this particular survey were the (relatively) strong percentage weighing in on things they said they were notlikely to do, including:

• evaluate phased retirement alternatives (66% not likely to do)
• offer qualifying longevity annuity contract (QLAC) – 86%
• facilitate purchasing annuities outside the plan as options for plan distributions – 85%
• reduce the number of loans available – 86%
• allow terminated participants to continue loan repayments to reduce frequency of loan defaults – 67%
• offer student loan repayment assistance – 48%
• measure employee perceptions and/or suggestions for benefit improvements – 30%

Not to mention the more than half (53%) who said they were not likely to address lifetime income, a similar 51% were not likely to show projected health care costs in retirement projections, not to mention the 39% who were not likely to discourage cashouts, or the quarter (25%) who were not likely to do anything about minimizing leakage.

Additionally, 25% (up from 21%) had no plans to implement initiative to address the retirement savings gap, 27% (up from 25%) were not at all likely to project the expected retirement income adequacy of the population, and 29% were not at all likely to “offer services, tools, or education campaigns on debt management.”

‘Not’ Likely

While the survey cited an impressive two-thirds of surveyed employers responding they are very likely to take steps in 2019 to create or focus on the financial wellbeing of their workers in ways that go beyond retirement savings – and even though this percentage grew from 30% in 2014 to 65% in 2019 – fully one in eight of these very large employers said they were not likely to create a broad financial wellbeing strategy. And there was the 1 in 10 who said they were not likely to recognize retirement readiness.

It has, of course, long been accepted wisdom that trends among larger employers are instructive in anticipating movements down market – and, in fact, on many things it has been (a notable exception: automatic enrollment, which, a decade after the Pension Protection Act’s implementation, among smaller programs significantly lags adoption by larger plans). Mind you, this survey is based on the perspectives of not just large employers – but very large employers – that employ, on average, 44,500 workers – and 17,000 even at the median (although 2% of the respondents had less than 1,000 workers). Consequently, those trendlines might be meaningful for the plans with which you work (particularly larger employers) – then again, they may not.

More than that, one should, of course, be careful in reading too much into trendlines from one period to the next – it’s rare that the survey respondents in one period are identical to those in another, and thus the difference – be it positive or negative – but particularly when the jumps are large – might be nothing more than what one group of employers say they will do versus a completely different group at a different point in time.

Caution is also warranted in reading too much into statements regarding planned, or intended, actions. While they’re doubtless an accurate assessment of planned undertakings at the time, we’re all very aware of how often those good intentions get derailed by any number of unanticipated events.

That said, I’d argue that in contemplating future trends, there’s merit in spending as much time looking at what plan sponsors say they aren’t likely to do, as we do the possibilities.

- Nevin E. Adams, JD

8 Things to Know About the State of Financial Wellness

For all the buzz around financial wellness, a new survey suggests there is a long way to go.

These days there’s not much argument against the premise behind pursuing financial wellness. The notion is that bad financial health contributes to (and/or causes) a bevy of workplace woes: stress, which can lead to things like lower productivity; bad health and higher absenteeism; and even a greater inclination toward workplace theft, not to mention deferred retirements by workers who tend to be higher paid and have higher health care costs.

But if there is little argument that financial wellness is a worthwhile goal for workers – and one worth supporting by employers – the recent Financial Wellbeing Employer Survey from the Employee Benefit Research Institute (EBRI) suggests that we have a ways to go.

Here are some key takeaways from that survey of 250 employers:

1. HR is leading the charge.

The most commonly cited primary champion for financial wellness was Human Resources (55%), followed (distantly) by a senior executive (21%). Human Resources was also cited as the most common secondary champion of these initiatives (26%). Fittingly, then, “communication from HR” was the most commonly cited means of encouraging employees to use financial wellness initiatives (39%), more than double the next highest (monetary incentives, at 19%).

2. The need tends to be gauged by traditional measures.

The most common approach reported in evaluating a need for financial wellness was examining existing employee benefit/retirement plan data such as deferral rates, average balances and loan frequency/amount. Nearly two-thirds of respondents (63%) had taken this step; a distant (48%) second was surveying workers.

Dead last? Creating a financial well-being score or metric (14%).

3. Motivations vary by employer size.

Midsized employers – those with 2,500 to 9,999 employees – were most likely to say they offer these initiatives to improve their workers’ overall satisfaction (67%).

However, the largest employers (>10,000 employees) were most likely to cite increased employee productivity (37%) – and being a differentiator from their competitors (27%).

Size also matters in availability; three-quarters of firms with 10,000 or more employees offered financial wellness initiatives at the time, compared with (just) 49% of smaller firms.

4. Measures of success are varied – and (still) somewhat subjective.

Improved overall worker satisfaction scored as the top measure of financial wellness initiatives (39%), (very) closely followed by reduced employee financial stress (38%). Worker satisfaction with the financial wellness initiatives and improved employee retention tied for third place (33% each).

However, “improved workforce management for retirement” – cited frequently as a key ROI attribute – was mentioned by a mere 10%.

5. Cost is a key consideration.

Cost was the top consideration (50%) cited by employers in determining whether to offer financial wellness benefits – though a close second was interest among employees (46%).

Little wonder that cost loomed large since more than two-thirds (68%) of respondents stated that current or prospective financial wellness initiatives are or would be employer-paid – a figure that increased to 85% among those with a high level of concern about the financial wellness of their workforce.

6. Most employers are not (yet) spending a lot.

While there was a wide range in cost cited for financial wellness initiatives (bear in mind, there was also a wide range in the definition of what constituted a financial wellness initiative), 43% reported the annual cost per employee of current financial wellness initiatives as $50 or less – and a full quarter (26%) did not know the cost.

On the other hand, the one in five firms that defined their financial wellness programs as “holistic” cited an average cost of more than $500 per employee.

7. But then, the programs’ scope is (still) pretty modest.

Only about 1 in 10 of those surveyed offer emergency savings vehicles or accounts, debt management services, or student loan repayment subsidies or consolidation/refinancing services.

Employee discount programs were the most common financial wellness benefit offered. These include cell phones, travel and entertainment; tuition reimbursement; and financial planning education, seminars and webinars.

8. We’ve only just begun.

Despite all the “buzz” around the topic, a majority of the employers surveyed characterized their programs as pilot programs (38%) or periodic or ad hoc programs (32%).

Even among employers with a high level of concern about the financial wellness of their workforce, only about a quarter (27%) characterized their financial wellness initiatives as “holistic.”

A long way to go, indeed.

- Nevin E. Adams, JD
 
See also: “What Plan Sponsors Want to Know About Financial Wellness” and “Building a Bottom Line on Financial Wellness.”

(Re) Solving the Retirement Crisis

Several weeks back, I was invited to participate in a group conversation on retirement and the future.

The group of 15 (they’re listed at the end of the document that summarized the conclusions) that Politico pulled together was diverse, both in background and philosophies, and included academics, think tanks, advocacy groups, and the Hill. It was conducted under Chatham House rules, which means that while our comments might be shared, they wouldn’t be specifically attributed. That latter point was helpful to the openness of the discussion, where several individuals had opinions that they acknowledged wouldn’t be supported by the groups they represent.

The conversation touched on a wide range of topics, everything from the key challenges to the current system, the private sector’s role in addressing these problems, the individual’s role (and responsibility) for securing their own retirement, government’s role and the potential for current congressional proposals to have an impact.

In view of the diversity of the group – the complexity of the topics – and the 90-minute window of time we had to thrash things about – you might well expect that we didn’t get very far. And, at least in terms of new ideas, you’d be hard-pressed to say that we discussed anything that hadn’t come up somewhere, sometime, previously. But then, this was a group that – individually, anyway – has spent a lot of time thinking about the issues. And there were some new and interesting perspectives.

The Challenges

It seems that you can never have a discussion about the future of retirement without spending time bemoaning the past, specifically the move away from defined benefit plans, and this group was no exception. There remains in many circles a pervasive sense that the defined contribution system is inferior to the defined benefit approach – a sense that seems driven not by what the latter actually produced in terms of benefits, but in terms of what it promised. Even now, it seems that you have to remind folks that the “less than half” covered by a workplace retirement plan was true even in the “good old days” before the 401(k), at least within the private sector. And while you can wrest an acknowledgement from those familiar with the data, almost no one talks about how few of even those covered by those DB plans put in the time to get their full pension.

Beyond that. there was a clear and consistent understanding in the group that health care costs and concerns were a big impediment to retirement savings, both on the part of employers and workers alike. People still make job decisions based on health care – on retirement plan designs, not so much. And when it comes to deciding whether to fund health care or retirement – well, health care wins hands down.

College debt was another impediment discussed. Oh, individuals have long graduated from college owing money – but never so many, and likely never so much (though you might be surprised what an inflation-adjusted figure from 20 years ago looks like). It is, for many, an enormous draw on current income – and one that has a due date that falls well before when retirement’s bill is presented for payment.

Women have a unique set of challenges. For many, the pay gap while they are working is exacerbated by the time out of the workplace raising children. They live longer, invest more conservatively, and ultimately bear higher health care costs – and increasingly find themselves in the role of caregiver, rather than bringing home a paycheck.

For many in the group, financial literacy still holds sway as a great hope to turn things around. There are plenty of individual examples of its impact, though the current research casts doubt on its widespread efficacy. Surely a basic understanding of key financial concepts couldn’t hurt (though don’t even get me started on the criteria that purports to establish “literacy”) – but it’s a solution that is surely at least a generation removed from the ability to have a widespread impact.

On a related note, the group was generally optimistic about the impact that the growing emphasis on financial wellness could have, both in terms of encouraging better behaviors, and a heightened awareness of key financial concepts. The involvement of employers, and employment-based programs seems likely to enhance the impact beyond financial literacy alone.

Resolving Recommendations

Ultimately, the group coalesced around four key recommendations:

The significance of Social Security in underpinning America’s retirement future – and the critical need to shore up the finances of that system sooner rather than later. The solution(s) here are simple; cut benefits (push back eligibility or means-testing) or raise FICA taxes. The mix, of course, is anything but simple politically – but time isn’t in our favor on a solution.

The formation of a national commission to study and recommend solutions. I’ll put myself in the “what harm could it do?” camp, particularly in that, to my recollection, nothing like this has been attempted since the Carter administration. We routinely chastise Americans for not taking the time to formulate a financial plan – perhaps it’s time we undertook that discipline for the system as a whole.

Requirements matter – but don’t call it a mandate. Since it’s been established that workers are much more likely to save for retirement if they have access to a plan at work (12 times as likely), but you’re concerned that not enough workers have access to a retirement savings plan at work, there was little doubt that a government mandate could make a big difference. There was even less doubt that a mandate would be a massive lift politically. And not much stomach in the group for going down that path at the present.

Expanded access to retirement accounts. While the group was hardly of one mind in terms of what kind of retirement account(s) this should be, there was a clear and energetic majority that agreed with the premise that expanding access is an, and perhaps the – integral component to “securing retirement” for future generations.

And maybe even this one.

- Nevin E. Adams, JD

p.s. I'm on the left, towards the top of the picture above.  Right next to Teresa Ghilarducci!

5 Key Industry Trends You May Have Missed

The Plan Sponsor Council of America recently released its 60th Annual Survey of Profit-Sharing and 401(k) Plans, documenting increases in participation, deferral rates, target-date funds, automatic enrollment and advisor hiring, among other key trends.

Here are five key trends highlighted in the survey that you may have missed.

Automatic enrollment is still (mostly) a large plan thing.

One of the most celebrated plan design features of the 401(k) era is automatic enrollment. Nearly as old as the 401(k) itself, once upon a time (when it wasn’t as popular) it was called a “negative election.” Regardless of the name, the concept has been extraordinarily effective at not only getting, but keeping, workers saving via their workplace retirement plans. However, adoption of the design, after a surge in the wake of the passage of the Pension Protection Act of 2006, now seems to have plateaued.

A decade ago, only about a third (35.6%) of respondents to the PSCA survey offered automatic enrollment. Now more than half (60%) do – and that increases to 70% among plans with more than 5,000 participants. However, only a third of plans with fewer than 50 workers do.

For some potential explanations – see Why Doesn’t Every Plan Have Automatic Enrollment?

Auto-escalation is escalating.

An incredible three-quarters of plans with automatic enrollment auto-escalate the deferral rate over time, compared with less than half (49.7%) a decade ago, according to the PSCA survey.

However, only one-third do so for all participants.

As for the rest, one in eight do so for under-contributing participants, and a third do so only if the participant elects to do so.

Plans are curing a fault with the default.

While you see surveys suggesting that a greater variety of default contribution rates is emerging, the most common rate today – as it was prior to the PPA – is 3%. There is some interesting history on how that 3% rate originally came to be, but the reality today is that it has been chosen because it is seen as a rate that is small enough that participants won’t be willing to go in and opt out – and, after the PPA, we have some law to sanction that as a target.

Sure enough, the PSCA survey found that the most common default deferral rate remains 3% (36.4%). However, more than half of plans now have a default deferral rate higher than 3%. Indeed, the second most common default (22.2%) is now 6%.

Roths remain on the rise.

Nearly two-thirds of plan sponsors now provide a Roth 401(k) option. In fact, in just a decade, the percentage of plans offering such an option has more than doubled; from about 30% in 2007 to 63.1% now.

Pre-tax treatment has, of course, been the norm in 401(k) plans since their introduction in the early 1980s. On the other hand, the Roth 401(k) wasn’t introduced until the Economic Growth and Tax Relief Reconciliation Act of 2001, and even in that legislation wasn’t slated to become effective until 2006 (and at that time was still slated to sunset in 2010). Significantly, participant take-up, which just a few years ago hovered in the single digits, is now in the 15-20% range (18.1% according to the PSCA survey, somewhat higher among smaller plans).

While industry surveys during the tax reform debate (including a flash poll from PSCA) indicated a fair degree of employer concern about the potential impact of so-called “Rothification” on participation, that doesn't seem to be slowing the opportunity for individuals to take advantage of tax diversification.

It’s (still) what goes in, not what comes out that ‘matters.’

It’s said that what’s measured matters – and yet, despite all the buzz around financial wellness, and a growing emphasis on outcomes, the latter still has a way to go in terms of being an established plan success benchmark.

Consider that in this year’s PSCA survey, a whopping 89.6% of plans cite participation rate as a benchmark to determine plan success – and even more (93.2%) of the largest plans rely on that gauge. Deferral rates were a distant second (72.6%), and average account balances ranked third (55%).

What about outcomes? Only a quarter of plans used that as a benchmark, though a third of the largest plans (33.8%) did.
Industry surveys, particularly those with a broad range of plan types and providers, and with the perspective of decades such as the PSCA survey provide an invaluable sense not only of where we are, but where we have been.

However, their real value lies in helping us see where we need to be.

- Nevin E. Adams, JD

More information about the Plan Sponsor Council of America’s 60th Annual Survey of Profit Sharing and 401(k) Plans is available at www.psca.org.

NOTE: There will be a special workshop exploring the survey results and the implications for advisors at the NAPA 401(k) SUMMIT, April 15-17, 2018 in Nashville, Tennessee. If you haven’t registered, there’s still time (but the hotel blocks are filling) at http://napasummit.org.

Why the Match Matters – to Employers

It has been heartening in recent weeks to see a number of employers announce plans to expand and increase benefit programs, offer bonuses, and increase the employer match. Better still, a recent survey indicates that more positive changes could lie ahead.

A decade ago, the headlines were filled with stories about a number of large firms announcing that they were cutting, and in some cases eliminating altogether, the employer match. While the vast majority of employers didn’t reduce those matches, it was nonetheless a stark reminder that those defined contributions are “defined” annually, not in perpetuity.

The Match Matters

There are a number of things that we know about the importance of the employer match; there’s the obvious (though sometimes glossed over) impact that an employer contribution means in terms of retirement security in simple dollars, for one thing. Indeed, the nonpartisan Employee Benefit Research Institute (EBRI) has estimated that if future employer contributions were eliminated for Gen Xers, their retirement readiness rating would decline from 57.7% to 54.6% – and that doesn’t consider what might happen to employee contributions as a result.

And then there’s the reality that those who it save in a retirement plan at work appear to save at/near the level matched (though the amount of the match matters less than the existence of the match), suggesting that it provides a savings target of sorts for workers.

There’s little question that the match does good things for workers and their retirement security – but, let’s be honest, the employer match that is “free” for workplace savers is anything but for the employers that provide it. Here’s why it’s worth the money.

Better Finances Mean Better Work

A 2017 Mercer study found that on average, people spend about 13 hours per month worrying about money matters at work – about 5 hours at the median, suggesting that some spend a lot more time than others thinking about such things.

EBRI’s Retirement Confidence Survey suggests that retirement confidence — and the retirement savings that ostensibly underpin that confidence – are at least somewhat connected. There’s a growing body of research that suggests that financial concerns take a toll on productivity. That’s not just retirement, of course – but it’s a big part of it.

Little wonder that more than 8 out of 10 (82%) finance executives surveyed by CFO Research with Prudential Financial, Inc., believe that their companies benefit from having workforces that are financially secure – and nearly as many believe that employers should assist employees in achieving financial wellness during their working years.

Better Benefits Attract Better Workers

Okay, every time somebody talks about the reasons to offer a retirement plan, “attract and retain qualified workers” is on, if not at the top of, that list. Thinking about that next generation of workers? Well, the 2018 Millennial Benefit Trends Report from Pentegra found that, asked if they take into account whether a job offers benefits when considering applying – well, pretty much everyone (96.77%) said yes. And, asked to rate five general benefits categories in order of importance, “401(k) Retirement Savings” easily outpaced the others, with about 4 in 10 rating it “extremely important.”

The CFO Research survey noted above also found that nearly two-thirds (63%) say that employee satisfaction with benefits is important for their company’s success, and 65% believe that employee benefits are critical to attracting and retaining employees.

Better Benefits Keep Workers

By far, the finance executives surveyed consider higher employee satisfaction (59%) and increased retention (53%) as the most important benefits of a focus on financial wellness.

State Street Global Advisors’ 2016 research suggests that there is a noteworthy interplay between people’s happiness with their working life and their financial well-being. In fact, reports indicate that financial wellness actually influences an employee’s happiness at work.

Poor Savings Postpones Retirements

A report by Prudential (aptly titled “Why Employers Should Care About the Cost of Delayed
Retirements”) found that a one-year increase in average retirement age results in an incremental cost (the difference between the retiring employee and a newly hired employee) of over $50,000 for an individual whose retirement is delayed.

Moreover, the report notes that it results in an incremental annual workforce cost of about 1.0%-1.5% for an entire workforce. This represents the incremental annual cost of a one-year delay in retirement averaged over a five-year period. Prudential notes that for an employer with 3,000 employees and workforce costs of $200 million, a one-year delay in retirement age may cost the employer about $2-3 million.

It’s been great to see so many employers announce enhancements to their benefits programs, cash bonuses and – most particularly – increases to their 401(k) matches. However, every year tens of thousands of employers commit to helping their workers save for retirement by committing to making a company match – and they have done so in good times and times that weren’t so good.

It’s a commitment that makes a huge difference – and one that shouldn’t be taken for granted.

- Nevin E. Adams, JD

What Plan Sponsors Want to Know About Financial Wellness

Several years back the concept of “wellness” crept into benefits planning. More recently, HR’s affinity for that wellness concept has been expanded upon by the concept of financial wellness. But as appealing as the notion is, a number of key questions linger.

With regard to wellness generally, the notion was simple: Rather than just treating the symptoms of poor health with insurance-funded trips to the doctor (or the hospital) after the damage was done, we’d get ahead of things by emphasizing healthy habit steps (smoking cessation, weight loss, etc.) programs that would reduce doctor bills (and insurance premiums).

As regards financial wellness, the notion is that bad financial health contributes to (and/or causes) a bevy of woes: stress, which can lead to things like lower productivity, bad health and higher absenteeism, and even a greater inclination toward workplace theft, not to mention deferred retirements by workers who tend to be higher salaried and who have higher health care costs.

But if the rationale is straightforward enough, and the interest somewhere between intrigued and highly committed, plan sponsors still have some questions that merit addressing.

What do you mean by ‘financial wellness’?

“Financial wellness” is a term widely bandied about these days, and by many different firms (and advisors). Unfortunately, it is a concept that is being applied somewhat inconsistently. I’ve heard stories of folks who affix it to practices that are little more than glorified enrollment meetings, to the simple inclusion of an “outcomes” analysis to the retirement plan report, to a full-blown series of workplace seminars on topics ranging from budgeting to estate planning.

So, the first question that needs to be answered is “What do you mean by financial wellness?”

What difference will it make?

The answer to the first question will, of course, have a great deal of bearing on this one. Naturally, the more modest the scope and scale, the less impact, but a lot depends on what issues the program attempts to address, not to mention the demographics (and overall financial well-being) of the workforce to which it is being applied.

Still, even if a comprehensive impact assessment can’t be completed without the collaboration of the plan sponsor, it’s important to be able to at least quantify an estimate of the potential impact(s), whether it be increased participation, improved deferral rates, or even just higher satisfaction with the program(s).

How long will it take/last?

Common sense suggests that financial wellness is a process, not an event, and one that, run well, may well run for some time following its introduction. Nonetheless, plan sponsors will, if not at the outset, at some point during the program, have some interest in knowing just how long until they can expect to see results.

How much will it cost?

Obviously, there will be a relationship between the nature and scope of the program and its cost. Anecdotally, there seems to be a fair amount of skepticism among plan sponsors – particularly on the HR side – of the cost-effectiveness of these programs. It is therefore worthy remembering that there is an “I” in ROI, and that plan sponsors will be interested in knowing what it is (or might be).

Who pays for it?

Once again, while the answer may well depend on the program envisioned, to the extent this represents new expenditures, how it will be paid for may well impact the scope and/or timing. Plan sponsors may be able to consider covering it out of general funds, but, depending on the nature of the program components, it might also be appropriate to consider tapping into health plan budgets, communications, or even retirement plan assets.

How will you measure success (or lack thereof)?

The good news is that ROI is increasingly the lead selling point in presenting these programs, and the “return” will almost certainly include some quantification, some combination of measurable deliverables. Of course, some of the deliverables of a financial wellness program are less quantifiable, but even in those situations, worker surveys can provide insights.

The bottom line is that a shared understanding and appreciation of the desired outcomes will go a long way toward achieving not only financial wellness – but customer relation wellness as well.

- Nevin E. Adams, JD

4 Reasons Why Plan Sponsors Should Care About Outcomes

It’s obvious why participants have a vested interest (literally) in the retirement income — the outcome, really — of their retirement savings plans. Here are four reasons why plan sponsors should care about outcomes.

You want your employees to appreciate your benefit plan(s).

If you’re responsible for benefit plans in your organization, you have a very real interest in how your workforce (and management team) view those benefits. Plan sponsors have long used participation rate as the plan success metric — after all, what better measure of success in plan design, education and communication than the objective data as to how many employees have chosen to participate.

But in a time when a growing number of plans have adopted automatic enrollment — well, while credit is certainly due plan sponsors who have taken that step, the resulting bump in participation rates owe more to the inertia of human behavior than innovative plan design.

There is, however, little question that the better your plan performs on an individual basis — positive growth in account balances, a resulting more robust projection of retirement income — the better workers will feel about the benefit plans that helped provide that result.

You don’t want your employees worrying about their finances at work.

Any number of workplace surveys bear out the impact that external concerns — particularly external financial concerns — have on morale and productivity at work (see “Finance Distractions Take Toll on Productivity, Benefit Satisfaction”) and “Study Finds Link Between Financial and Physical Wellness.”) Those concerns don’t even touch on the vulnerability to theft and/or misuse of organizational resources that can tempt financially vulnerable workers.

A robust retirement savings balance at work isn’t a cure for all financial ills, of course, but it can be a source of solace, as well as a resource in time of true financial need.

You want your employees to retire on time.

Workers who think they can’t afford to retire are likely to try and extend their working career — potentially complicating succession planning and your ability to attract (and/or retain) new talent. Data from benefits consultant Mercer notes that each delay in retirement can block 5+ jobs, and that if 4% of your population is retirement eligible and half of those people choose to delay retirement, 10% of your employee population would experience promotion blockage.

As an employer, those trends can also result in higher labor costs, and safety and productive concerns (see “Plan Sponsors Waking up to Costs of Older Workers who Can’t Retire.”)

You want your plan to ‘work.’

There are employers who only offer a workplace retirement plan because everybody else does, who are willing to just “set it and forget it,” who, hearing that workers aren’t taking advantage of the benefit they worked so hard to set up, shrug and say “it’s up to them.”

But that’s not you. Is it?

- Nevin E. Adams, JD

Note: You can find some interesting perspectives on various aspects of plan and participant outcomes at our Participant Outcomes resource page.