In Practice October 11, 2023

Employee Benefit Programs: Integrating Financial Wellness Milestones

The CEO of an employee benefits technology firm shares key milestones to best engage participants.

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In the modern corporate landscape, employee benefit programs are evolving to address more than just health care and retirement. Companies are increasingly realizing the value of providing comprehensive financial wellness programs that ensure their employees are not only physically and mentally healthy, but also financially secure.

Financial Wellness: An Integral Part of Employee Benefits

Philipp Hecker

Financial wellness programs have evolved from their humble beginnings as supplementary services focused primarily on savings and investment. Today, these programs are vital frameworks designed to encompass every facet of an employee’s financial existence, often weaving in holistic planning that aligns with the unique financial milestones encountered throughout life.

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Understanding the intricacies of one’s financial journey is essential. Unlike a blanket approach, the journey to financial wellness involves recognizing employee-specific age points that could either act as risks or open doors to opportunities. These milestones are not mere numbers, but vital markers that guide one’s financial path.

Key Financial Milestones for Employees

Every stage of life comes with unique financial challenges and opportunities. From the birth of a child to the contemplative years nearing retirement, employees encounter various financial junctures. By understanding and anticipating these milestones, individuals can be better equipped to make decisions that align with their long-term goals and aspirations. Here, we highlight some of the pivotal age-specific points that punctuate the financial lifecycle of the average employee:

  • Birth: A crucial time for parents to set up savings plans, such as 529 plans for education.
  • 14 (Working age): When some teens may start their first jobs and begin to invest (via custodial individual retirement accounts) in tax-advantaged ways for their future.
  • 15-17 (Driving age): Financial implications of getting a driver’s license, insurance and perhaps even a car.
  • 18-21 (Age of majority): When most become financially independent and might start their first full-time job, go to college and/or take out student loans.
  • 26 (Health care milestone): When one can no longer stay on their parents’ health insurance.
  • 50 (Catch-up contributions): The opportunity to make additional tax-advantaged contributions to retirement accounts.
  • 55 (Early withdrawals / HSA catch-up contributions): When some retirement accounts allow for penalty-free withdrawals, and one can make additional contributions to health savings accounts.
  • 59.5 (Retirement withdrawal): Traditional IRAs and 401(k)s offer penalty-free withdrawals.
  • 60 (Social Security for widow or widowers): Widows and widowers can start collecting Social Security benefits.
  • 62 (Earliest Social Security): The earliest, albeit not always best, age to start collecting Social Security benefits.
  • 65 (Medicare): Eligible to begin Medicare coverage.
  • 67 (Social Security FRA): Full retirement age for Social Security for those born in and after 1960.
  • 70 (Social Security latest): The age when individuals must start taking Social Security.
  • 70.5 (QCDs): Age to start utilizing Qualified Charitable Distributions, for those that are philanthropically inclined.
  • 73 (RMDs): Mandatory withdrawal for certain retirement accounts.

Addressing the Knowledge Disparity

Despite the significance of these milestones, an alarming proportion of the workforce lacks awareness. Worryingly, 66% pass on without a will, while some 64% are unfamiliar with educational savings plans like 529s.

Even as employees age, only 16% leverage the catch-up contributions to their retirement accounts upon turning 50. Sadly, this information gap often persists even among those who consult financial advisers: Bento Engine research indicates that 60% do not receive guidance on catch-up contributions, while 40% have little insight into the best time to begin taking Social Security benefits

How Employers and Financial Wellness Providers Can Bridge the Gap

This evident knowledge gap is not just a challenge—it can present an opportunity. For businesses, incorporating a financial wellness program that highlights these age-specific milestones can be transformative. It is not merely about the company’s bottom line; it is a corporate responsibility that can lead to a more contented, loyal, productive and financially secure workforce.

Employees empowered with timely, precise information are positioned to make more informed financial decisions. Imagine the peace of mind when an employee understands the nuances of Social Security benefits, potentially generating an additional $182,000 in lifetime benefits. This knowledge becomes a powerful tool that, when wielded correctly, can bolster financial security.

Moreover, a proactive approach from retirement plan advisers, whereby employees are informed in advance about upcoming financial milestones, can potentially foster a sense of trust and preparedness. They are no longer navigating the complexities of finance alone; they gain access to a structured program and potentially even financial coaches, both of which can guide them along the way.

The Future of Employee Benefits

The evolution of employee benefit programs to integrate financial wellness signifies a seismic shift in how companies view their responsibility towards their workforce. By acknowledging and addressing the knowledge gap, employers working in conjunction with retirement plan sponsors are not just providing another perk; they are affirming their commitment to the holistic well-being of the company’s employees.

In doing so, they are not only enhancing their corporate image, but also fostering a workspace with employees who are empowered, confident and secure in their financial future. The result? A more engaged, loyal and productive workforce.

Philipp Hecker is CEO of Bento Engine, a fintech platform empowering proactive, comprehensive advice at scale.

Practice Management October 11, 2023

Experts: Good Demographic Data Key to Driving Plan Design

Going beyond foundational participant data is valuable in addressing employee needs and attitudes, according to a panel of retirement industry experts.

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When making decisions about plan design, investment menu lineups and financial wellness benefits, leveraging demographic information and properly collecting that data is a key piece of the puzzle, according to panelists who spoke at PLANSPONSOR’s Roadmap livestream event on Tuesday.

At the session “Check Your Demographic Mirrors,” Pam Hess, the executive director of the DCIIA Retirement Research Center, said while most plan sponsors have access to foundational participant data, it is valuable to peel back more layers to fully understand employee demographics and attitudes.

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“I think of all the data elements like a house,” Hess said. “The first floor is like some of the basics: age, gender, income, tenure … data that most employers have access to. The second floor can add in some nuances around marital status or race. Not everyone has a second floor, but it’s certainly aspirational. The third floor is like the cobwebby attic, and it’s [understanding] financial wellness. It’s so important, but maybe it’s not well-understood or explored.”

Hess said focus groups can provide more nuanced demographic details, and conducting surveys is an effective way of gathering information. But she said to be wary of outright asking people to submit their demographic information in a survey, as many fear how this information will be used and might be hesitant about sharing too much information with their employer.

Conducting a financial wellness study that embeds straightforward questions about demographic information is a strategy that Hess recommended. She added that it is important for the plan sponsor to be transparent with participants and communicate why they are asking for this information.

An optimal time to gather information is usually at the time of hire or during annual open enrollment, Hess said. If an employer is conducting a survey, she said it is also important that there are no firewalls blocking people from taking it. Incentivization, such as offering people the chance to win a gift card for completing the survey, can be an effective way to drive participation as well.

“Keep it easy, simple and transparent,” Hess said. “I think the main takeaway is: Don’t wait for it to be perfect. … Go into it expecting that you’re not going to have 100% participation. Progress is the goal.”

Bridget Bearden, a research and development strategist at the Employee Benefit Research Institute, said keeping track of who attends employee resource group meetings could also help an employer understand the psychographics—psychological variables like attitudes, values and fears—of workers. A company may have ERGs for the LGBTQ+ community or for military veterans, for example. Tracking attendance at these meetings can help a plan sponsor better understand what their employees value and how that drives their behavior.

Demographic Personas

The panelists also spoke about the concept of demographic personas and how using personas—profiles that align with the characteristics of different categories of participants—can help inform plan sponsors about plan design and even investment lineups.

Personas dig into the personality of a group of participants, focusing on what makes them who they are and what drives them to seek out certain benefit offerings.

“Everyone that’s aged 20 to 30 and a woman earning $75,000 [per year] are not homogenous,” Hess explained.

Plan sponsors can use personas to target different educational materials, benefits offerings and investment menu options to relevant groups within the participant population.

An example of personas can be seen in Capital Group’s recent expansion of its employee engagement program, ICanRetire, an expansion specifically targeted toward Hispanic participants. The various program participant personas represent different age groups, participation rates and other factors like financial knowledge and investing confidence. The personas are invisible to participants using the program, but they inform the way ICanRetire creates tailored content.

Bearden said developing clusters of benefits offerings to meet the needs of different demographic personas in this way is more cost-efficient than personalization because it can target larger swaths of a population.

“You can have seven personas that you do messaging for, and it doesn’t have to be [specific to] age and race,” Bearden said. “It’s really a marketing exercise, at its core.”

Anonymized Data

When providing data, many participants do not want any personally identifiable information to be shared with their employer. A plan sponsor can more easily collect “anonymized data,” information that is stripped of all things personally identifiable, such as addresses, Social Security numbers and phone numbers.

Hess said DCIIA found in a survey that many employees fear their employer will use information against them. For instance, they fear that if their employer finds out that they have a bad credit score, this could impact how their employer views them. Hess reminded attendees at the webinar that employers do not need to know everything about each individual but can survey pockets of the population instead.

Bearden said it is important to separate traditional demographics from personal identities. EBRI research found that caregivers, in particular, are reluctant to tell employers about their role as a caregiver for fear that their manager or employer will treat them differently.

“It is important that we are sensitive to the nuances of demographics and understand where demographics end and where identities begin,” Bearden said.

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