Making the Case for Workplace Financial Wellness

The American workplace is constantly changing. At one time, people generally stayed with one employer throughout their entire career and then retired with a gold watch and a big pension until they passed away. Then over the last 25 years, employers increasingly shifted from those traditional defined benefit plans to defined contribution plans which left the control, and the risk, in the hands of employees who were often ill-equipped and unprepared for that responsibility. From 1980 to 2008, the percentage of private employees with a defined benefit pension fell almost in half from 38 percent to 20 percent, while the percentage with only a defined contribution plan rose from 8 percent to 31 percent.

This trend isn’t limited to retirement benefits. More recently, we’ve seen a shift toward consumer-driven health care plans that place more risk and responsibility for healthcare spending on employees as well. According to a Willis Towers Watson/NBGH survey last year, 86 percent of employers were considering offering a consumer-driven health care plan this year, and over a third were planning to make it the only available option.

The workplace is beginning to go through another evolution in which employers become more than just a source of pay and benefits. As employees bear more of the responsibility for their financial wellbeing, employers are increasingly finding it to be in their best interest to help their employees advance their total financial wellbeing. For example, 93 percent of companies surveyed in a 2015 Aon Hewitt report are likely to create or broaden their efforts on financial wellness in a manner that extends beyond retirement decisions. Employees appreciate it too, as 81 percent in a TIAA survey reported that they trust financial information offered by their employer. There are several reasons that help explain this trend:

1. Greater need for benefits appreciation

It’s a lot easier to understand the value of a pension or a comprehensive medical plan that the employer pays for than a 401(k) or an HSA that the employees may be solely responsible for funding, or at least share responsibility. A financial wellness program can help employees understand, utilize, and more fully appreciate these benefits. In turn, this can help employers recruit and retain talent.

2. Rising financial stress

A 2016 survey by Bank of America Merrill Lynch revealed an increase in the percentage of Americans reporting financial stress to 60 percent, up from 50 percent in 2013. In fact, our  2016 Financial Stress Research found that one in four employees reported financial stress that was “high,” or “overwhelming” – levels that could be considered unmanageable. According to an AP/AOL health poll, high levels of financial stress are correlated with higher occurrences of headaches, insomnia, high blood pressure, stomach ulcers, muscle tension, and severe anxiety and depression. Those experiencing high levels of stress also experience more relationship and substance abuse issues. There’s a rising awareness among employers that this stress can have a negative impact on a company’s bottom line due to factors like higher health care costs, absenteeism, lost productivity, and on-the-job accidents. For example, our most recent study of one Fortune 100 healthcare company calculated that employer healthcare costs associated with employees who used the company’s financial wellness program actually decreased by 4.5 percent, while the costs associated with employees who never used the program increased by 19.4 percent

3. Delayed retirement

In addition to suffering greater financial stress, Americans are increasingly delaying their retirement. A 2014 Gallup poll found that the average retirement age rose from 60 to 62. Many employees continue to work because they are underprepared or they don’t know if they are prepared to retire. 69 percent of Boomer employees do not believe or do not know if they have enough money to live comfortably to age 85, according to a Bankers Life Center for a Secure Retirement^® study. This delayed retirement trend may only accelerate with the potential of future cuts in Medicare and Social Security and lower investment returns due to relatively low interest rates and high stock valuations. Employees who would like to retire but delay could cost their employer $10,000 to $50,000 for each year they work past normal retirement age due to higher health care costs and salaries versus younger employees who would have otherwise taken their place. This doesn’t include the cost of lower employee morale/productivity and higher turnover of high performing employees who aren’t advancing.

One of the biggest contributors to delayed retirement is not saving enough. However, financial wellness programs can make a difference by not only educating employees on the need to save more, but also helping them learn the basic money management skills to come up with the money to save. Our 2015 Year in Review Research showed a direct correlation between average 401(k) deferral rates and the number of interactions employees had with their financial wellness program. Those with only one interaction averaged less than a 6 percent deferral rate, while those with 5 or more interactions had an average 11 percent deferral rate, almost twice as much. Our research also shows that repeat users had an 88 percent improvement in the percentage on track for retirement.

Another factor is how well the employees invest the retirement money they save. However, our research found that only 46 percent of male employees and 36 percent of female employees felt confident in their investments. A workplace financial wellness program can help employees understand their investment options and make the right choices for themselves.

4. Other costs of poor financial wellness

Our recently released ROI Special Report also found a direct relationship between an employee’s financial wellness and their average annual cost to the employer from other factors like absenteeism, garnishments, and payroll taxes. The study found that those with the lowest Financial Wellness Score™ of 0 to 2 cost an average of $198 per employee while those with the highest scores of 9 to 10 actually saved $143 per employee per year. Increasing the median financial wellness score of a 100,000 employee company from a 4-5 would save over $433,000 in decreased garnishment costs, over $682,000 in payroll tax savings from increased usage of flex spending/HSAs, and over $4 million in reduced absenteeism. Increasing the median from a 4 to a 6 would save over $886,000 in garnishments, $1.7 million in flex spending/HSAs, and over $8.5 million in absenteeism.

Employers used to bear the risk and burden of providing for the health and retirement security of their employees. As that burden has shifted onto employees, employers are finding themselves in a new role. The American workplace has become more than just a place to earn money — it’s now a place to learn how to make the best use of that money.