Healthcare employees rank the absolute lowest in financial wellness, with below average grades in the areas of financial stress, retirement planning, investing, debt, and money management. Read Financial Finesse’s case study of a Fortune 500 Healthcare Company’s successful financial wellness program to learn how to tackle the unique HR and benefits challenges facing healthcare professionals.
The Financial Finesse Gender Gap in Financial Wellness report is an annual review of the financial wellness gap that exists between women and men in the workforce. It examines a variety of financial behaviors and outcomes, as well as the societal, psychological and practical barriers to gender parity when it comes to cash flow issues, retirement preparedness and other aspects of financial wellness. The report offers suggestions for employers and individuals to help close the gap and promote total financial wellness for all employees.
American employees continue to experience high levels of financial stress, and could be losing sleep over it. In this research report, we look at which employees are the most stressed about money, and what employers can do to help their employees develop the solid money management and investment planning skills they need to find lasting financial peace of mind.
How much money can a highly effective financial wellness program save your organization? The answer, for most large companies, is well into the millions — and that’s focusing on the costs that are easiest to measure: wage garnishments, absenteeism and utilization of FSAs and HSAs. With additional analysis, companies can also measure the savings from reductions in healthcare costs and delayed retirement. Modeling and survey research can benchmark and measure improvements in employee engagement, productivity, retention and morale. While the most toxic effects of unchecked financial stress, like embezzlement, workplace violence and a culture of negativity, are nearly impossible to calculate, it’s intuitive that reducing financial stress would also reduce those problems.
The Starting Point for Calculating ROI: Financial Finesse’s Predictive Model
The national average financial wellness score is 5, based on Financial Finesse’s 0-10 financial wellness scale which benchmarks each employee’s financial wellness based on an online assessment. A Workforce Financial Wellness Assessment™ aggregates and analyzes this data on the company level. The chart to the left shows the projected costs savings of an incremental shift in the median workforce financial wellness score from 4-6, which has the potential to save a large employer of 50,000 employees approximately $5.6 million a year.
The cost savings illustrated in the above chart are simply a starting point of what is easy to measure — the tip of the iceberg of a much more in-depth analysis that needs to be done to more accurately calculate the true financial impact.
A strong behavioral-based financial wellness program drives results in areas that are much more strategically important to the success of your organization, such as:
Healthcare Cost Savings
A 2014 study from the American Psychological Association reports that 64 percent of those surveyed cited money as a significant source of stress, and that Americans are paying for this stress with their health. Financial stress has been attributed to decreased employee productivity, increased absenteeism and increased employer healthcare costs.
Financial wellness programs are correlated with lower healthcare costs. Our own study of a Fortune 100 healthcare company found 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. This equated to a cost savings of $271.50 per employee. If a 50,000-life employer experienced the same cost savings by offering a comprehensive workplace financial wellness program, it could save the employer over $13.5 million a year.
POTENTIAL ANNUAL HEALTHCARE COST SAVINGS
$271.50 (net healthcare savings per employee)
X 50,000 (average number of employees)
= $13,575,000
Reducing Costs of Delayed Retirement
Employees today are woefully underprepared for retirement, with only 21 percent indicating they are on track to achieve their income goals in retirement according to recent research from Financial Finesse. As employees progress through the late career cycle, those who are underprepared may have to delay their retirement for financial reasons. This has repercussions throughout the company in terms of increased health and disability costs as well as the velocity of talent development. According to the Transamerica Center for Retirement Studies®, 65 percent of Baby Boomers either plan to work past age 65 or do not plan to retire at all. For every year an employee who would like to retire delays retirement for financial reasons, the employer faces estimated additional costs between $10,000 and $50,000.
Our research shows that as employee’s overall financial wellness levels increase, so do contributions to retirement plans. Higher contribution rates reduce the likelihood of delayed retirement, since employees are more financially prepared. For younger employees, our research suggests that increases in contribution rates due to improved financial wellness could increase lifetime retirement savings by as much as 12 percent to 28 percent.
Our research also found that employees that engage repeatedly in their employer’s financial wellness program increase their likelihood of being on track for retirement—from 34 percent to 47 percent according to our findings*. For a 50,000-life employer, this 13-point improvement could equate to a $6.5 million annual cost reduction related to delayed retirement.
POTENTIAL COST SAVINGS FOR HELPING EMPLOYEES RETIRE ON TIME
13% (improvement in employees on track to retire)
X 10% (estimated % of workforce nearing retirement)
X $10,000 (estimated annual cost per employee for delayed retirement)
X 50,000 (average number of employees)
= $6,500,000
*Data based on study conducted for Fortune 100 employer using Financial Finesse’s services. Individual company results may vary.
Recruit, Retain, and Engage Top Talent
According to the 2016 Deloitte Millennial Survey, two-thirds of younger employees plan to leave their current job by 2020, with 25 percent saying they plan to leave in less than a year. Turnover costs companies money. Citing the research of W. F. Cascio, the SHRM Foundation’s report, Retaining Talent, indicates that “…direct replacement costs can reach as high as 50 percent to 60 percent of an employee’s annual salary, with total costs associated with turnover ranging from 90 percent to 200 percent of annual salary.” That puts costs anywhere between $45,000 and $100,000 when replacing an employee making $50,000 a year. A 2016 Paychex survey found that approximately 70 percent of employees cited low pay as a reason they have left or would leave a job, and 45 percent said they have or would leave due to a lack of benefits.
In our experience, most employees are dissatisfied with their pay and benefits because they haven’t fully maximized the value of what their company offers. They leave thousands (in some cases tens of thousands) of dollars on the table annually by not taking advantage of free or low-cost benefits such as company matching programs, discounted voluntary benefits, health and wellness benefits, and the small benefits that add up over time like commuter benefits, free parking, tuition reimbursement and others. The money they are foregoing could be the difference between sinking deeper into debt and proactively saving towards key financial goals.
Consider a scenario where a 50,000-life company with a 10 percent turnover rate institutes a comprehensive workforce financial wellness program. If that program resulted in 50 fewer employees leaving the company (i.e., a 1 percent reduction in the turnover rate), it could equate to over $2.2 million in annual savings:
POTENTIAL COST SAVINGS BY REDUCING TURNOVER
1% (projected reduction in employee turnover)
X 10% (turnover rate of employees)
X $45,000 (estimated net cost to replace employee)
X 50,000 (average number of employees)
= $2,250,000
Measuring Your Organization’s ROI
Using Financial Finesse’s predictive model, companies can set research-based benchmarks for their financial wellness program, customized to their employee demographics and financial wellness levels. This starts with a Workforce Financial Wellness Assessment™ to determine the median levels of employee financial wellness and financial stress, followed by implementing optimal outreach based on your workforce demographics. Improving median financial wellness is a process that takes time – there aren’t instant fixes that happen in one quarter. Companies can integrate data based on key measurement variables and benchmark results on a year-over-year basis. For the hypothetical 50,000-employee company discussed here who implements a comprehensive workplace financial wellness program according to industry best practices, pulling all those results together could result in total cost savings of nearly $28 million.
| Garnishments | $ 443,413 |
| FSA/HSA contributions payroll taxes | $ 887,229 |
| Absenteeism | $ 4,264,396 |
| Health care | $ 13,575,000 |
| Delayed retirement | $ 6,500,000 |
| Turnover | $ 2,250,000 |
| Estimated Total | $ 27,920,038 |
The recently finalized U.S. Department of Labor Fiduciary Rule is a historic ruling which has the potential to change the direction of the financial services industry. Financial Finesse CEO Liz Davidson and our Think Tank of CERTIFIED FINANCIAL PLANNER™ professionals offer our analysis of the impact of the rule on employers who offer workplace financial wellness programs to their employees.
Today there are an endless number of resources online on how to get your financial life together, yet most Americans struggle to form the right financial habits. Getting people to truly change their financial habits requires more than just technology, it demands a personal touch. Learn more about how working with Certified Financial Planners® can make all the difference in getting employees on the right financial track.
I’ve talked to dozens of HR pros who tell me one of their biggest concerns these days is having employees who can’t retire because they haven’t saved enough. It seems to be growing clearer three years after the recession that this could be a potential black hole for plan sponsors. In fact, the Employee Benefit Research Institute (EBRI) just released an entire study, along with best practices, to help employers adapt to the new paradigm of having older workers in their work force.
According to our research, employees in virtually all demographics are unsure if they will be able to retire. This means there is ongoing risk for employers to spend millions of dollars over time on employees who delay retirement. Here are some of the tangible costs they could incur:
But even beyond these tangible costs, employers face:
To avoid these risks, employers can take some proactive steps to help their employees understand their retirement benefits and use them to effectively grow their portfolios. Here are a few:
Create a Retirement Preparedness program. It may be possible for the retirement plan to fund this program using money from the ERISA budget account. Some of our clients have designed substantial programs that include a variety of services to meet their employees’ learning styles and retirement education needs. Through these types of programs, employers help employees understand the way their retirement benefits work as part of their overall finances. Before you implement any kind of retirement education program, gather data on your workforce. This will help you find out where they stand, what specific issues they face, what they know about their existing benefits, and how they learn best, so that the education has an effect on the way they prepare for retirement.
Fine tune your auto-enrollment by starting with a healthy deferral rate, adding auto-escalation, and defaulting into a balanced fund that has reasonable growth potential over time. Many employers are already implementing auto-enrollment. A recent Aon Hewitt study found that 60 percent of employers automatically enrolled employees offered auto-enrollment in their retirement plan. The problem is that most plans enroll participants at only a two or three percent deferral rate, which is nowhere near enough to fund their retirement. On top of it, employers often compound this mistake by choosing a stable value fund as the default investment election, virtually guaranteeing participants won’t have enough to retire. By simply setting up auto-enrollment more effectively—with auto-escalation to help employees save more—employers can set up their employees for success.
Offer incentives for employees who are able to retire early. This will make room for younger workers to advance even with older workers staying in the workforce longer. EBRI also talks about a “phased retirement” or “rehearsal retirement” option for employees who cannot afford to retire, but can work less hours or receive some of their pension benefit (if the employer offers one) while they are still working.
There are many risks to be aware of in employees delaying retirement, but the good news is there are also ways to combat them. Taking proactive steps to helping employees meet their retirement goals ensures employees who are working are doing so because they want to, not because they have no other choice.
Last year, 43 percent of employees sought HR guidance for benefits information, according to a Prudential study on benefits communication.
This many employees asking HR for help choosing their benefits creates not only a fiduciary risk for a company, it can also take a substantial toll on a manager’s time and energy.
But the questions coming into HR can be evaded with proactive communication if provided before open enrollment, and from a benefits planning approach, rather than once a year. That means making benefits communication a year-long initiative in order to help employees address their questions before they arise.
Here are some important areas to watch during your open-enrollment season so that you can establish an effective benefits planning program next year:
1) Take notes on the questions employees are asking.
If nearly half of a company’s employees ask for benefits guidance during open enrollment, that means there’s a communication gap that isn’t being addressed with traditional materials.
Handing employees a textbook of benefits information has not been effective in reaching employees—they’re often too busy to read it cover to cover, or too overwhelmed by all their options. During this season, document the questions you are receiving. Evaluate them after the chaos has settled and determine which questions appear most often.
Dig even deeper and determine the complexity of your employees’ questions. Are they simply asking questions about how to enroll, or are they asking questions about certain benefits which may require outside guidance? You can use these questions and your analysis of them to build a program that proactively addresses employees’ questions throughout next year before open enrollment so that they make more informed decisions and take less of HR’s time to do it.
2) Determine how they like to receive benefits information.
Most employees choose their benefits with very little time or research put into their options. Prudential found that 24 percent of employees choose their benefits by simply re-checking the boxes on the same benefits they had the year before. Forty-four percent said they put some research into choosing their benefits, but usually go with the same benefits as well.
Employers are missing the mark in what they’re giving employees to make benefits decisions. The most successful benefits communication is targeted to specific groups within a company’s work force, understanding that reaching employees with ways they want to learn is most effective.
Determine how your employees are seeking information and making benefits decisions through surveys or focus groups after open enrollment is over. Are employees seeking outside resources online? Are they asking colleagues for advice? By tuning in to what your employees are looking for and how they obtain it, managers can target the different groups’ preferences.
3) Communicate that benefits are a big part of employees’ overall lives.
As the effects of our economy continue to impact employees, they continue to put more importance on company-sponsored benefits.
According to a MetLife study of the American Dream, 94 percent of employees surveyed felt it was important for employers to continue to offer benefits even if they are mostly funded by the employees themselves. Making the connection to how decisions they make about their benefits during open enrollment have an impact on their personal financial lives, such as what they’ll spend in health care costs and whether they’ll be able to meet important long-term goals such as retirement, helps employees put their benefits into perspective.
Consider sending benefits information through a series of e-mails that have an educational aspect to them, such as an example of how much an employee could have in retirement if they were saving 10 percent of their income into their retirement plan. By showing employees the value of their benefits and how those benefits can help them to achieve their personal goals, managers can help employees to make the best decisions about their benefits, and even increase benefits participation.
This open-enrollment season may be chaotic, but using it to build a benefits planning strategy that educates employees about their benefits all year long will free up time for HR next season, and help employees make better decisions about their benefits. Now, isn’t that a win-win situation?
Back in November, I talked with BenefitsPro.com reporter Paula Aven Gladych about some of the trends we were seeing with companies adding a financial wellness component to their existing wellness programs. Last year we saw more in this space than in any other type of financial education program, with over 80 percent of inquires specifically for these type of programs.
This could be the result of employers feeling the impact of employees’ financial stress on HR and company-wide initiatives as employees endure a bumpy economic recovery. A recent SHRM study found that 83 percent of HR professionals felt their employees’ personal financial issues affected them in some way at work.
But whether a company’s financial wellness program actually reduces costs to their bottom line is what ultimately determines whether it’s an effective strategy. Recently, one of our largest Fortune 500 clients evaluated their own financial wellness program to determine if it was actually achieving results.
The company followed many of the best practices imperative to achieving success (which I’ll talk more about next column) and found that their program saved the company significantly across multiple HR initiatives including cutting absenteeism, reducing turnover, boosting employee pay and benefits satisfaction, reducing health care costs, and reducing the risks of having employees who cannot retire when they want to. Here is a quick overview of the three key findings from their research:
1.) Reduced health care costs
The company saw savings of 21.57 percent for heavy users of its financial wellness program versus 4.19 percent for non users. In its first issue of Research Works, the Partnership for Workplace Mental Health cites several surveys that show financial stress as a leading cause of stress for employees. By reducing the number one cause of stress for employees, the company was able to reduce health care costs associated with stress-caused illnesses.
2.) Increased retirement plan participation and deferral rates
The company found that the more interactions an employee had with the education, the more they saved on average in their 401(k) plan. Participants who had one interaction on average deferred around 5.77 percent in their plan, but those who had five or more interactions deferred an average of 11 percent. This in turn reduces the company’s risks of having employees who cannot meet retirement income goals due to not having saved enough.
3.) Improved employee financial management
The most important aspect to any wellness program—whether it is physical or financial—is behavioral change. Do employees actually improve their behaviors as a result of the program? The company found that over the course of two years, employees made improvements in major areas of financial management including reducing debt, saving more for retirement, managing their day-to-day finances better and establishing an emergency fund.
Read the full study here. http://goff.im/Financial-Finesse-ROI-Case-Study
During our preparation of Thanksgiving dinner, my kids and I had a conversation about our family. There have been a lot of changes in the family over the last year or so. There have been several deaths, several births, several weddings and a few events that I’m probably forgetting as I write this. Continue reading “One Of The Most Important Financial Steps You Can Take”
Unfortunately, there is a large gap between men, women, and the respective amount of retirement savings needed. How can financial wellness programs help level the playing field when it comes to retirement preparedness? Liz Davidson discusses research from Think Tank at Financial Finesse on what this gender gap in retirement preparedness looks like, and steps employers can take to narrow it.
What is the definition of financial wellness? Financial wellness pioneer Liz Davidson defines it as “a state of financial well being, where employees have minimal financial stress, a strong financial foundation and a plan in place to achieve future goals. As more employers focus on providing employees comprehensive and holistic benefits to be completely well, not just free of disease, it’s become obvious that helping people with their finances is a key component of wellness.
August is an overlooked month. Every other month of the year has a holiday or is associated with an exciting beginning, but not August. Many of us try to sneak in one last summer weekend or some back to school shopping but other than that, August is usually a lull in the calendar. A great way to make August productive is to examine the employee benefits programs that you aren’t taking advantage of so that you know which options you do want to sign up for during open enrollment this fall. A few minutes now can help you be prepared to maximize your benefits and possibly save thousands of dollars instead of rushing through a decision or just doing what you did last year. Continue reading “The Hidden Costs Of Overlooked Benefits”
I recently received a question after one of my workshops from a woman who was wondering if she made a mistake paying her mortgage off early because she no longer has the mortgage interest deduction. I can’t tell you how many times I’ve gotten different versions of that same question (including after a later workshop session that same day). Here are several reasons why this is a classic case of letting the tax tail wag the dog: Continue reading “Is Paying Off Your Mortgage Worth Losing The Tax Deduction?”
I was out with friends recently and a new song from Pitbull and NeYo started playing. The song created a rush to the dance floor and given that when I dance, people think I’m either having a seizure or in some sort of pain, I opted to grab beverages for our group instead of risking injury (mostly to others) on the dance floor. As I was waiting for the drinks to be poured, I started listening to the lyrics of the song. Continue reading “Don’t Take Financial Advice From Pop Music”
One of the more interesting stories I’ve seen recently in the world of sports is about a guy named Rob Konrad, a former NFL player, who fell off his boat and swam 9 miles to shore. It took him about 16 hours, he had hypothermia, and he couldn’t walk but at least he survived the ordeal. Along the way, he was circled by a shark and had to fight waves, wind and the dark in order to make it home safely. Continue reading “Are You On a Crash Course to Disaster?”
We at Financial Finesse would like to wish you and your family a happy and prosperous 2015!
We at Financial Finesse would like to wish you and your families a Merry Christmas!
When you see your 401(k) balance or even a projection of your future balance when you retire, do you really know what that number means for your retirement? If you’re like most people, you probably don’t. A $200k balance may look like the most amount of money you’ve ever had so you can easily think it will be more than sufficient even if it turns out to be nowhere near enough to generate the income you’ll need to retire comfortably. Continue reading “3 Hidden Pitfalls Coming to a 401(k) Statement Near You”
Recently I was talking with one of my coworkers and I said the following about something at work “It’s like flossing…I know I need to do it, and I do, but I try to find ways to postpone it as long as possible!” He thought it sounded like a blog topic about the financial lives of so many people, so here we are! What are some things that we KNOW we need to do financially, but they are so “not fun” that we either don’t do them or we keep putting them off indefinitely? Continue reading “Do You Need Some Financial Flossing?”
