Even as the coronavirus pandemic swept across the United States, it exacerbated another type of epidemic that has grown to troubling proportions: the failing financial health of many Americans.
Tackling the “other epidemic” should be a priority as employers reset their organizations for a post-pandemic environment. The best remedies will come when their pension advisors and benefits specialists come together for the effort.
Financial stress is an ongoing problem for Americans, but the problem has clearly spread during the pandemic. A report released last year by John Hancock, his “2020 Financial Strain SurveyRevealed that 62% of workers surveyed were under moderate or extreme financial stress, compared to 39% before the pandemic. One in four workers has been forced to dip into their savings to get by.
The causes of financial stress are well documented. One of the biggest sources is the crushing student loan debt burden, now at $ 1.7 trillion and a drag for some 44 million Americans, according to the US Federal Reserve. Credit card debt and other forms of debt are also of great concern.
Financial stress costs employers as much as it costs their employees. John Hancock’s survey estimates that a given employee can lose around 47 hours of productivity per year due to absenteeism and work distractions caused by serious financial worries. In addition, it hinders the savings capacity of some employees, especially for retirement.
Overall, retirement preparation remains a persistent problem for plan sponsors, given the higher costs associated with supporting older employers who cannot afford to retire. It’s not just the wage gap between older employees and new entrants to the workforce, but also the increased health care liability and workers’ compensation costs. There are also more intangible costs in terms of lost opportunities when there are fewer job opportunities to attract the next generations of workers.
The poor financial health of American workers is not straightforward. The causes and their impacts are all interconnected, prompting pension and social security professionals to combine their best thinking to craft a cure that benefits everyone. Shared imperatives should be the basis of a smart financial well-being strategy.
Here is how such a working group can begin to tackle problems.
First, determine the extent and nature of the financial pressures on employees. It starts with identifying the specific needs of employee segments and getting more detail than conventional wisdom on, say, who owns student debt. Personal analysis provides a more in-depth perspective, based on factors such as life and career stage, education, lifestyle, and goals. Look at the range of voluntary benefits and what is used by whom. Surveys can help. The more you dig, the better the information to create a suite of solutions.
To this end, be aware of the specific financial impacts of the pandemic on employees. More than half of Millennials and Gen Xers in the 2021 PwC Employee Financial Wellness Survey, for example, expected to use their pension funds for non-retirement expenses. Providing financial advice is a huge common need. Over 90% of people who responded to John Hancock’s survey said that financial advice would help them even more than a larger employer contribution to their pension plan.
Second, check current plans to make sure the needed benefits aren’t hidden. Legal insurance and financial resources are often part of pension plans, voluntary benefits, and employee assistance programs (EAPs). These and other financial supports may be more successful if they are repackaged as part of an existing and cohesive financial wellness plan, and if they are promoted. At the same time, there is no need to break the bank by offering benefits under the plan. In fact, most voluntary benefits are not funded by employers. The simple fact of offering them under the aegis of the employer helps. And don’t forget the role of tax breaks. An employer’s contribution to employee student loan payments is tax-free up to $ 5,250.
Third and finally, communicate, communicate, communicate. This is the key to any successful benefits program, and so it is with a program focused on financial wellness. The messaging should be delivered to the relevant channels, be it email or voicemail campaigns, or even a specific features website where employees can explore the solutions offered. It’s also worth developing an engagement strategy. Any incentive can be built into it, such as a gift card or larger grand prize, to encourage registration.
Everyone benefits when employees have the tools they need to master the financial basics, whether it’s setting goals or budgets, setting financial priorities, or paying off debt. A financial wellness plan that reflects the thinking and resources provided by pension and benefits experts will go a long way in solving a long-standing problem.
About the authors:
Daniel Bryant is the President of Retirement and Private Wealth of Sheridan Road Financial, a division of Hub International.
Heather Garbers is Vice President of Voluntary Benefits and Technology for Hub International, where she is responsible for driving sales and the Voluntary Benefits strategy.
This function is intended to provide general information only, does not constitute legal or tax advice and may not be used or replaced by legal or tax advice. The views of the author do not necessarily reflect the position of Institutional Shareholder Services or its affiliates.