As a licensed financial adviser, I have spent much of the last 20 years working directly with plan sponsors. Over this time, I have noticed the main goal of the plan sponsors has transitioned from increasing plan participation to helping the participants reach their tangible goals of having enough to retire. And just as the goal has changed so has the message of how to help the participants reach their goal.
In my earlier days I took the direct route of telling people that starting their contribution as early as possible and contributing 10-15% would get them to the sandy beaches of their choice upon their retirement. “10 Reasons to Increase Your Contribution Rate Today” and “How Compounding Can Be Your New Best Friend” were common themes in the communication I helped prepare for plan sponsors. And I’ve watched benefit teams spend their time following the three most popular statistics for their plans: participation, deferral rates and balance leakage to measure the success of their program.
Admittedly, these are important indicators of the success of retirement plan and its usage among employees. And admittedly it is also important to teach employees the importance of contribution and the magic of compound interest. But we are realizing that there are deeper issues driving participation and contribution rates. Historically we were focusing on going from A to Z, without addressing the entire alphabet of other issues affecting the employee’s ability to contribute or to even participate.
Now, I’ve come to believe the best way to help people focus on their retirement is to focus the attention to other areas of wellness that affect their ability to participate. A recent poll by the Harvard School of Public Health revealed that 53% of respondents who had experienced a great deal of stress in the last month said financial problems were to blame. Research based at Princeton University revealed that financial stress actually affects an employee’s ability to concentrate and directly affects their IQ, lowering it by several points.
Personal financial worries spill over to the decisions employees make regarding their retirement with some choosing to take hardship withdrawals, retirement plan loans and reduce contribution amounts. While these decisions may alleviate the employee’s current state to some extent, it worsens their long-term situation, creating a cycle of financial woes.
And this not only affects the employee, but the employer as well with a direct effect on a company’s bottom line. A study from The American Psychological Association found that money concerns topped the list of stressors since 2007. These money concerns lead to lost productivity costing employers upwards of $7,000 per year per stressed employee. In addition, another study estimated that 75% to 90% of health-related work absences are a direct result of stress.
So there are factors in other areas of an employee’s life that plan sponsors should be focusing on, because it is those factors that drive the employee’s ability to concentrate on the importance of retirement planning. Factors such as an employee’s debt and financial-emotional stability, stand in the way of an employee’s ability to focus on saving for retirement. Turning up the volume on a comprehensive wellness program, both health and wealth, may have better outcomes for employees, such as the ability confidently save for retirement. And have a better outcome for the employer in terms of productivity.
Luckily financial wellness programs have grown in popularity over the last 18 months, slowly moving away from the status quo. It is important that as plan sponsors move forward with educational programs for the employees that they continue to give equal weight, if not more, to the issues surrounding the financial and health wellness programs.
A comprehensive financial wellness program should include access to education, a view into the total rewards and compensation received by the employee and tools to help the needs of that particular workforce. These elements will help employees maximize the benefits available through their employer, focus on what some consider the dreaded “B” word – budgeting, plus help with the emotional aspects of creating a workable financial strategy. This focus not only helps the employee, but also helps employers with absenteeism and workers’ compensation costs, according to the Consumer Financial Protection Bureau findings.
In addition, implementation of these programs doesn’t always have to come from the top down and can actually be more effective taking a lateral approach. A survey from the International Foundation of Employee Benefit Plans found almost 75% of respondents looked to their “family members, friends, co-workers or peers” for help with financial matters. So an HR department who can recruit a few key employees to help promote available services may remove the stigma of asking for financial help.
Addressing benefits as independent offerings, cataloged in separate buckets may help check the box, but that approach may not meet the ultimate needs of the employee. To help improve employees’ retirement readiness, look beyond the typical contribution and participation rates and focus on a comprehensive financial wellness approach.
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