Balancing Act

As employers increasingly take a more holistic approach to the financial wellness of participants, there is growing awareness that, for many employees, retirement is just one of many financial demands they are juggling at any given time.

A recent Financial Finesse study found that eight in 10 American workers last year reported some level of financial stress, with 25% reporting that the stress was high or overwhelming. In response, employers have expanded their benefit offerings to include important tools such as emergency savings accounts and student loan assistance.

Among the most common benefits added to financial wellness programs in the past year are a wellness stipend (38%), access to a financial adviser (30%) and child-care support (28%), according to Betterment.

“There are formidable, competing financial priorities, but the good news is that many employer financial plans have been expanding the tool kit participants have access to, in recent years,” says Catherine Collinson, CEO and president of the Transamerica Retirement Institute and president of the Transamerica Center for Retirement Studies.

Those expanded benefits reflect employer recognition that improving financial wellness can reduce turnover and increase productivity, and also that employees, in his tight labor market, have been demanding the help. Nearly 90% of workers said it is important for employers to offer a financial wellness program, and two-thirds said these programs improve company loyalty, John Hancock recently found.

But the more benefits employers offer, the more assistance employees need, so they can apprehend how the offerings all work together—and how to best use them to get on, or remain on, solid financial ground while planning for a successful retirement. People have only so many dollars left over each month, after all, and it can be hard to figure out whether to use those to boost retirement savings, for example, or to make progress toward other financial goals.

That creates an opportunity for advisers, who can work with plan sponsors and their participants to help those individuals gain the most from the benefits at their disposal.

Raising Awareness

One way to help participants decide where to put their next dollar is simply to make them aware of all their benefit options. While increasingly companies offer financial benefits, only about half of workers take advantage of them, beyond the retirement plan, according to a TIAA study.

“It seems that everyone could benefit from a refresher on the types of accounts available and the tax treatment of those accounts,” Collinson says. “The tool kit has been expanding.”

Even the conventional wisdom to start by contributing enough to your retirement account to get any employer match may require further clarification for employees who have access to both a Roth and a 401(k) and are unsure how to allocate between the two, says John Majors, a principal with SageView Wealth Management in Knoxville, Tennessee.

The decision becomes even more complex for employees with high-deductible health plans who have access to a health savings account that also has an employer match.

“That brings in the added dimension of saving for health-care expenses down the road in retirement,” Collinson says. “And the research shows that many people may not fully understand those accounts yet.”

In some cases, the best allocation of funds is not within workplace benefit accounts at all. “Where the next dollar should go is going to really depend on the individual’s financial situation and the tools available to that person,” Collinson says. “For example, if an individual has a balance on a high-interest-rate credit card, it could very well be the top priority to pay that down and not let it spiral out of control.”

That said, a holistic approach to financial wellness can lead to better retirement outcomes.

The TIAA report found that 54% of workers who participated in a financial wellness program at work are confident they will retire when they want to, compared with just 32% of those who do not participate in a financial wellness program.

Here are several ways advisers and their plan sponsor clients can help participants determine where their next dollar should go:

Provide Topic-Specific Content

OneDigital works with sponsors to offer a range of webinars, group meetings and online tools aimed at reaching plan participants as they go through specific financial stages.

Such programs make a difference when it comes to retirement readiness. An Employee Benefit Research Institute study earlier this year found that workers who attended a budgeting webinar were likely to increase their defined contribution plan contributions, and older workers who attended an emergency fund webinar were less likely to take a loan from their retirement account.

Offer One-on-One Support

Jim Keenehan, a senior consultant with AFS 401(k) Retirement Services in Washington, D.C., uses a step-by-step process to help plan participants figure out where to allocate all of their assets.

“We start at the beginning with helping them make a budget,” he says. “Then, if they don’t even have a dollar to spare, we have to take a step back and figure out how to get them to a spot where they do have a dollar to spare.”

After that, Keenehan says, the advice is typically to start by building an emergency savings account, funding an HSA—if the employee has access to one—enough to cover a health insurance deductible, and contributing enough to the person’s DC plan to get the company match.

Many participants want this type of professional advice when it comes to distributing their savings to meet their goals. More than six in 10 told Charles Schwab last year that they believed their financial situation warranted advice, up from just half in 2020.

Discuss Benefits Relevant to Plan Demographics

Keenehan says, besides working with participants to make the most of their benefits, he consults with the sponsor to make sure its benefits are tailored to the participants’ needs.

“Each year we pull a lot of data from the recordkeeper, looking at where participants are in terms of contribution rates and which plan features they’re utilizing,” says Katherine Golladay, investment adviser at OneDigital in Baltimore. “Then we talk to the plan sponsor about what it’s been hearing and if there is a need it’s been ask[ed] about.”

This year, for example, many sponsors and participants have been asking for more content and programming about how to approach student loan repayment, as the COVID-19-related loan payment suspension is set to end on August 31, Golladay says.

The portion of employers offering student loan repayment assistance doubled to 8% in 2020, the most recent year for which data is available from the Society for Human Resource Management.

Dimensional Fund Advisors takes a similar approach, helping plan sponsors create customized benefits packages based on their employee demographics, says Tim Kohn, head of the firm’s retirement distribution group in Austin, Texas. He says his firm broadly thinks about financial benefits as falling into five buckets: retirement, student loans, emergency savings, health savings accounts and financial wellness. But while there are rules of thumb that participants can keep in mind, the decision of which bucket to put their savings into remains complicated.

“We as an industry are racing to get this right, because participants deserve advice and guidance for their unique situation,” he says. “But there’s no silver bullet on what that looks like in the benefits space today.”

Consider Incentives to Help Participants Allocate Savings

Once the adviser has determined which benefits make sense for a client’s population, he can work with the sponsor to think about how to incentivize employees to allocate their dollars in a specific way, Majors says. For example, offering a match in an HSA, or an initial deposit in an emergency savings account, might inspire participants to start using those accounts or divert their savings from other areas.

In addition to helping plan sponsors think through how such moves might nudge participants in a certain direction, plan advisers can also help sponsors understand the costs of such programs and determine how they will pay for them.

“If they’re adding a match, where is it going to come from?” Majors says. “Is that going to inflate their employee costs? Or are they going to reduce their DC match? Or offer a total savings match for the employee, allocated between multiple accounts?”

Knock Down the Silos

There is an opportunity for advisers to add value to their services to sponsors by helping them deliver their benefits in a more cohesive way, making it easier for participants to visually and mentally connect all of their benefits, Majors says.

“When you have multiple websites and logins and solutions that are siloed, it doesn’t work well for participants,” Kohn says. “Advisers can harmonize those benefit silos and help plan sponsors get everything—DB [defined benefit], DC, emergency savings, FSAs [flexible spending accounts], HSAs—all on one page.”

Some plans go a step further, allowing plan participants to also bring in data or connect to non-plan assets, such as personal brokerage accounts or assets that belong to their spouse. Advisers who can gather more financial information from participants can give better advice, Keenehan says.

“That’s why it’s so critical to have a secure, online platform for that data,” he says. “It’s extremely important to know everything that’s out there—emergency savings, credit card, student loan debt; all of that stuff is critical to being able to provide fiduciary advice that’s in their best interest.”

Kohn says many sponsors are also requesting that advisers come back to their workplace, after remaining away during the COVID-19 years, to meet with employees individually and in groups to explain their benefits and provide advice.

Besides financial advice and guidance via managed accounts, many employers are also offering financial coaching benefits to help employees meet specific goals and be more strategic about how to allocate their savings dollars, says Katie Hockenmaier, U.S. defined benefit research director at Mercer in San Francisco.

Encourage Management to Remind Employees of Benefits

Regardless of which financial wellness benefits an employer offers, a key to increasing engagement and uptake is buy-in and communication about those benefits from senior leadership, Keenehan says.

That is an area where many plan sponsors have room for improvement: Just over half of employers communicate the value of benefits programs to their employees twice a year or less, according to a Bank of America report.

“The best financial wellness programs have true champions within the organization and top-down support from the CEO and the entire C-suite,” Keenehan says. “They should be actively participating in the financial wellness benefits and encouraging employees to do the same.”

Art by Allie Sullberg