Many employees are struggling with financial issues that affect their job performance, according to a recent report.
The
International Foundation of Employee Benefit Plans found in a survey,
“Financial Education for Today’s Workforce: 2016,” that workers are
struggling with debt (66%), saving for retirement (60%), saving or
paying for children’s education (51%), covering basic living expenses
(48%) and paying for medical expenses (36%). Employers have also noted
that the “sandwich generation” is struggling with supporting elderly
parents and adult children.
Four out of five employers say their
employees’ personal financial issues are somewhat, very or extremely
impactful on their job performance. The top areas affected include an
increase in stress (76%), the inability to focus at work (60%), and
absenteeism and tardiness (34%).
“Nearly half of organizations
rate their workforce as only a little bit or not at all financially
savvy,” says Julie Stich, CEBS, director of research at the
International Foundation. “Employers are also reporting more financial
challenges among employees today than five years ago and are seeing
these challenges reflected in the day-to-day operations of their
workplace.”
To address the problem, nearly half of organizations
(49%) offer benefits literacy education. In addition, 45% provide
retirement security education, and 23% offer financial literacy
education. These programs cover topics including investments, savings,
insurance, budgeting, pre-retirement financial planning, retiree health
care and more. Two-thirds of organizations offering financial education
rate their programs as successful and teach financial principles through
free personal consultation services, classes and online resources.
Twenty
percent of organizations are currently assessing their participants to
decide what topics are most needed, and 47% are considering it for the
future. Fourteen percent of employers report having a financial
education budget, and 22% are considering it.
“Workplace education programs are the most successful when an organization identifies the unique concerns of their workforce
and tailors the message to fit that audience,” Stich says. “Employers
should ask their participants what they want and consider what topics
would be the best fit.”
State-Run Plans Will Struggle Without Aggressive Plan Design
TIAA government markets executive urges lawmakers and DOL to
heed the financial services industry’s hard-earned lessons when implementing any
state-run plans for private-sector workers.
All told, about half of the 50 U.S. states are actively
considering ways to provide payroll deferral retirement savings programs to
private-sector workers whose employers opt not to deliver the benefit,
including a handful of states that have already taken steps to launch these
plans.
As a senior vice president in charge of government and
religious markets for TIAA, Rich Hiller is frequently called on to discuss the
efforts these states are making. He points to a handful of states in particular—California,
Illinois, Oregon, Wyoming, Connecticut and Washington—which seem to be furthest along in the effort and which offer some important food for thought.
“These states get a lot of attention because they are at
different stages of actually rolling out plans to the private workforce,” Hiller
tells PLANADVISER. “They make a great series of case studies for what may work and what may not work to boost retirement savings overall in this country. Unfortunately, the first thing to note is that I don’t believe these plans
are going to prove to be a windfall in new retirement assets, either for the workers or for firms like TIAA
and other private market providers, as some have speculated.”
This is largely because Hiller doesn’t see the plans catching
on like wildfire the way some in the Department of Labor (DOL) and the various
state legislatures anticipate. Like other financial industry practitioners and
commentators, he feels there is little reason to believe that these plans will
be more popular than the individual retirement account (IRA) offerings most
workers can already access today.
“Of course, the big difference is that these programs may be mandatory, or at least they may force the worker to proactively opt-out of saving,” Hiller explains. “They may
also be built in a way that makes them lower cost compared to private market
IRAs, which could lead to greater uptake than we currently see with IRAs. In
the end, however, the ultimate key to success for these programs, as with the defined
contribution (DC) plans already existing out there, will be features like
auto-enrollment and auto-escalation.”
Some states seem to be falling
into the trap of believing that simply getting folks saving a little bit is a
positive step towards retirement readiness. “So, for example, we have Illinois
moving ahead on a plan to do auto-enrollment at 3% of salary in an IRA-like
account,” Hiller explains. “In Colorado and Connecticut, we see them considering
being a little more aggressive, with a 5% and 6% auto-enrollmen,t respectively,
but I don’t think you can argue that any one of those is a sufficient
deferral for real retirement readiness.”
Hiller goes on the explain that these programs will be at a further disadvantage compared with many employer-sponsored DC plans because very few
states, if any, seem to be willing to offer up matching contributions on
deferrals to these new retirement programs. “Unfortunately, I don’t
expect many states to end up with a matching contribution,” Hiller adds. “There
are just far too many other budget constraints that governments are feeling right
now to make that a likely possibility.”
NEXT: DOL guidance still
unfolding
Hiller goes on to predict that, while there may be
opportunity for the private sector to support governments as they roll out
these plans, “any initial accounts will be small and will likely grow slowly,
given the low auto-deferral rates and fairly conservative plan designs that are
being proposed.” He also expects firms to be more than a little intimidated by
the prospect of having 50-different approaches to delivering these benefits, “which
would make it very hard to support the programs efficiently.”
Another aspect slowing up the overall progress of the private
sector and the state governments moving to implement these plans is that the
DOL is still in the process of updating its regulatory stance on how these
plans will relate to the Employee Retirement
Income Security Act (ERISA). It was just last November that the DOL proposed a
new set of rules and guidance for how it would like to see these plans come
into being—and as Hiller observes, it's pretty clear that most states do not want their programs to fall under the ERISA umbrella.
That late-2015 action from the DOL included Interpretive Bulletin
2015-02, which sets forth the department's current view concerning the application of
ERISA to “certain state laws designed to expand the retirement savings options
available to private sector workers through ERISA-covered retirement plans.”
The Department separately released a proposed forward-looking regulation describing
safe-harbor conditions it would like to set up for states and employers “to
avoid creation of ERISA-covered plans as a result of state laws that require
private sector employers to implement in their workplaces state-administered
payroll deduction individual retirement account (IRA) programs, commonly
referred to as auto-IRAs.”
Considering the pending regulatory change, Hiller expects states, employers and private market providers will all have to be very cautious as they work together to roll out any new offerings.
“This is unfortunate
to some degree because we know that it is the most aggressive plan designs that
are going to be needed to get people to real retirement readiness,” Hiller
concludes. “We would all like to see
more plan designs that promote lifetime income and speak the language of income
replacement and protection.”