Reading the Stress Barometer

BrightPlan finds employees, especially Gen Z, are anxious about their financial situation as employers seek solutions.

Most employees, with 86% of Gen Z included, feel anxious about their financial circumstances, which in turn can cause a loss to productivity, according to an annual employee wellness report.

According to the firm’s Wellness Barometer Survey, workers lose more than 7 hours of productivity every week because of their financial worries, while Gen Z reports over 8 hours a week in lost productivity.

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Workplace financial strain also contributed to increased turnover of employees, according 78% of leaders. This challenge is expected to exacerbate as younger generations, who exhibit heightened stress levels and expect more support from their employers, gain more prominence in the job market, the researchers noted.

“Among the leaders we surveyed, 75% admit that their company places more importance on profits than employee well-being,” Marthin De Beer, founder and CEO of BrightPlan, said in a statement. “What leaders don’t recognize, however, is that ignoring workers’ needs for financial support is having a sizable impact on their bottom line. Investing in financial benefits isn’t just the right thing to do for your people— it’s also critical to driving business success and longevity.”

The report comes as many retirement plan advisers are focusing more on how to guide plan sponsors toward effective financial wellness options for participants. BrightPlan is just one of a host of vendors, including from recordkeepers and advisory firms, offering wellness programs that provide access to financial educators and, if requested, certified financial planners—with plan sponsors prioritizing the best options, according to a recent DC survey from investment consulting firm Callan.

Disconnect

According to the wellness barometer, a disconnect exists between what workers require and the support provided by employers. Although leaders believed that 30% of their workforce has an “excellent” financial situation, only 12% of employees shared this perception. While 76% of workers expressed dissatisfaction with their company’s financial benefits, 92% of leaders were convinced that their company offered the necessary financial support for employees.

Since workers not getting enough guidance from their employers, many are turning to other sources, BrighPlan reported. According to the report:

Nearly 8 out of 10 respondents say they’ve received bad financial advice, for example from friends (52%), family members (51%), co-workers (43%), and social media influencers (41%). Meanwhile, over half (55%) report that they’ve made financial mistakes based on the misguided information they’ve received.

Due to these factors, many employees are experiencing low levels of financial preparedness, according to the researchers. For example, 38% report having no emergency savings or only enough for up to 2 months, and 42% report unmanageable debt. Nearly half (47%) report saving either nothing at all or less than 10% of their income for retirement.

As a result, employees are facing inadequate levels of financial readiness, as 38% indicated they have no emergency savings or only enough for a maximum of 2 months, while 42% struggled with unmanageable debt. Almost half (47%) admitted to saving either nothing at all or less than 10% of their income for retirement.

“[Companies] need to revisit their benefits and ensure they’re meeting employee expectations — especially if they want to recruit Gen Z talent,” Dan Schawbel, managing partner, workplace intelligence, said in a statement. “These young workers are struggling the most with their financial situation, and they also expect more from their employers in terms of support and benefits.”

BrightPlan’s study surveyed 1,400 workers at companies that have a global presence with 1,000 or more employees in the U.S. in January. All statistics are from an analysis of the survey data performed in March.

GAO Recommends DOL Update TDF Guidance

GAO reports concerns about a lack of understanding of TDF glidepaths and the growth of CIT TDFs.

The rise of collective investment trusts as a preferred defined contribution investment vehicle to put participants into target date funds has gotten the attention of the country’s Congressional watchdog.

The Government Accountability Office released a report this week noting the increased popularity of target-date funds and recommended that the Department of Labor update its regulatory guidance to reflect changes in the market as it relates to CITs and the difference between TDFs with “to” and “through” glidepaths.

The report, published in March but publicly released on April 29, was conducted at the request of Senators Patty Murray, D-Washington; Bernie Sanders, I-Vermont; and Representative Robert Scott, D-Virginia.

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The GAO explained that the growth in the use of automatic enrollment by defined contribution plans is a key factor in the growth of TDFs, especially among younger workers. According to the report 42% of 401(k) participants had access to TDFs in 2006, compared to 84% in 2020. Citing data from the Investment Company Institute and the Employee Benefit Research Institute, 59% of participants were invested in TDFs as of 2020. People in their 20s had 51% of their retirement assets in TDFs, compared to 23% of those in their 60s.

The GAO likewise attributed TDFs popularity with younger workers to automatic enrollment, since TDFs normally serve as a default investment: “In addition, participants that are automatically enrolled into TDFs are often younger and newer employees, which contributes to younger participants holding TDFs at higher percentages than older participants.”

Given the popularity of the investment structures, especially as a default, GAO noted that understanding of TDFs is quite low, especially as it relates to how different TDFs compare to one another. Citing Morningstar data, the report said that in 2022, 79% of inflows to TDFs were to TDFs structured using CITs as the underlying investment vehicles.

Mutual funds are regulated by the Securities and Exchange Commission, while CIT providers, which are often banks or trust companies, can be often be regulated by the Office of the Comptroller of Currency as well as the IRS and DOL.

CITs often have lower fees than mutual funds, in part because they  have the same disclosure requirements that the SEC imposes on mutual funds.

Apart from the questions raised by the use of different investment vehicles, the investment strategy of TDFs varies based on whether the funds in them are invested “through” the date a participant is expected to retire, which tend maintain higher equity exposure through retirement; and “to” TDFs, or those that reach their most conservative allocation at the target date. In other words, “through” funds tend to have a less conservative glidepath than do “to” funds. The report noted that the median equity exposure at the target retirement date for “through” funds was 46%, compared to 38% for “to” funds.

The report noted that the SEC and DOL worked together in 2010 and 2014 to update guidance on TDFs that would have required them to show an illustration of their glidepath, explain what their target date means, and when their allocation is at its most conservative, among other requirements. However, this project never resulted in a final rule.

Instead, the DOL relies on an investor bulletin from 2010 and a plan bulletin from 2013 as sub-regulatory guidance. The plan bulletin describes the factors sponsors should consider when selecting a TDF, and the investor bulletin provides basic information about TDFs.

The GAO report argues that these bulletins are insufficient because they do not account for the difference between CIT and mutual fund based TDFs. GAO also argues that neither bulletin offers a sufficient overview of “to” vs “through” TDFs, and that the plan bulletin offers an unintentional endorsement of “to” funds over “through” by saying that stocks are more volatile than bonds without mentioning that stocks can outperform bonds.

The offending text cited by the GAO from the plan bulletin reads:

“Some funds keep a sizeable investment in more volatile assets, like stocks, even as they pass their ‘target’ retirement dates. Since these funds continue to invest in stock, your employees’ retirement savings may continue to have some investment risk after they retire. These funds are generally for employees who don’t expect to withdraw all of their 401(k) account savings immediately upon retirement, but would rather make periodic withdrawals over the span of their retirement years. Other TDFs are concentrated in more conservative and less volatile investments at the target date, assuming that employees will want to cash out of the plan on the day they retire.”

The DOL rejected the recommendations of the GAO and maintains that existing guidance is adequate and that the language of the plan bulletin is even-handed, according to the report, and cited other regulatory priorities such as implementing the SECURE 2.0 Act of 2022.

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