Participants June 18, 2015

A Financial Wellness How-To

More retirement plans may be adding financial wellness programs, due to increased interest in participants' retirement readiness. 
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A shared interest in helping plan participants move the dial on retirement readiness as well as general financial behavior sparked State Street Global Advisors (SSGA) and Benz Communications to partner in an unusual venture: a day-long “hackathon” for plan sponsors to share concerns and insights on their employees’ financial behaviors.

At the end of the December session, SSGA and Benz had, with the help of their Fortune 500 plan sponsors, six steps that organizations could use to bring financial wellness to their own employees.

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For the past 10 years since the Pension Protection Act (PPA), the retirement industry has been tightly focused on improving the 401(k) plan, says Megan Yost, head of employee engagement, global defined contribution (DC) at SSGA. In the wake of the PPA, plan sponsors began to implement auto features and use plan design to improve outcomes.

Another driver of the growing interest in financial wellness is the rise of high-deductible health care plans, says Jennifer Benz, founder and chief executive of Benz Communications, which is pushing this to be more of an issue for companies. “More workers in high deductible health plans has unintended consequences on the financial side,” Benz tells PLANSPONSOR, noting the connection between an employee’s finances and health care benefit design.

“The next step is continuing to help people use the plan to the fullest extent,” Yost tells PLANSPONSOR. “If people are hampered by loans and poor financial habits, they can’t fully utilize the plan.” Sub-optimal financial habits are partly responsible for what Yost says is a huge shift in plan sponsors’ desire to help people address their immediate concerns in order to improve financial habits. 

 NEXT: Taking the financial pulse of the workforce.

“We heard from our clients about financial wellness becoming an increasing area of interest that they wanted to take on, but didn’t know how to tackle,” Benz says. “What is it? How can organizations harness it?” Amazingly, she says, they were able to get 12 senior benefits people to show up for a day filled with energy and enthusiasm.

The group had a number of initiatives. They wanted strategies for providing wellness in the workplace and a toolset of offerings to integrate behaviors that would lead to financial wellness. They wanted programs to be holistic and to help reduce financial stress, and they wanted to improve their employees’ financial lives by helping them make sound financial decisions.

A good place for plan sponsors to start is to understand the financial landscape by surveying their work force's financial stresses and priorities, both at home and at work, in developing a financial wellness strategy. Debt, budgeting or simple financial literacy could be hampering financial stability—but it’s critical to know which takes priority in building the plan.

Companies must determine what financial wellness means for the organization by first deciding how they’d like to influence their work force. Programs should aim to meet a range of needs, and benefits teams can consider aligning overall rewards and benefits programs with employee well-being.

Corporate budgets and resources vary, but the group recommends the following as critical best practices: implementing benefits that engage and matter to employees—for example, 401(k) matching contributions; using smart benefits design, including automated plan features; segmenting financial solutions and communication, to target employees at diverse income and financial knowledge levels; and communicating year round to ensure messages stick. 


NEXT: Financial wellness can have a measurable ROI.

Building a business case is another key step. A wide body of research concludes that workplace health and wellness programs have saved up to $3 for every $1 spent. While financial wellness differs from physical wellness, the group recommends framing the case for financial wellness programs in similar terms, including decreased absenteeism and increased productivity.

Many plan sponsors assume that it’s just the high-tech companies or organizations with a lot of money to spend on benefits that are interested in financial wellness programs, but that’s just not the case. “There is a business case to be made in every industry,” Benz says, “because of the productivity and work force management issues.”

An interesting outcome of the day, Benz says, was how hands-on these plan sponsors were, and the extent to which they wanted to have a role in helping their employees. “That feels paternalistic,” she admits. But the plan sponsors said that taking care of their employees is part of being an employer of choice, since financial wellness programs can be used to address recruiting, acquisition and retention.

A surprising finding was that some of the challenges and financial conditions employees experience have little to do with salary: Some highly compensated employees struggle with finances and live day to day, Benz says, because of their spending habits.

“We wanted to share emerging best practices around financial wellness with plans of all sizes so they could start learning from the lessons of the largest plan sponsors,” Yost says.

Twelve Fortune 500 company reps in benefits or human resources (HR) took part in a day-long session hosted by SSGA and Benz Communications to brainstorm ideas to bring financial wellness to the workplace. The project is slated to reconvene each quarter, by phone or in person, to monitor progress and continue sharing insights.

 The full report with the recommended six best practices from the group, plus a supporting infographic on U.S. financial wellness, is free for download here.

Data and Research June 18, 2015

Re-enrollments Remain a Poorly Leveraged Plan Booster

Only 7% of plan sponsors answering a J.P. Morgan survey have previously conducted a re-enrollment. 
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Plan sponsors cite a variety of reasons when asked why they have not conducted a re-enrollment, according to newly released J.P. Morgan research, but much of the hesitancy results from poor understanding of how to plan and enact the re-enrollment effort.

More than one-quarter (28%) of the 750-plus respondents to J.P. Morgan Asset Management’s 2015 Defined Contribution Plan Sponsor Survey said they have considered a re-enrollment but did not pull the trigger—often based on a basic level of satisfaction with their plan’s overall asset allocation. The research finds this plan-level satisfaction with the way assets are being directed is probably higher than it should be, as 53% of sponsors in the same sample worry about their individual participants’ ability to make sound asset-allocation decisions.

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Discussing the research results with PLANSPONSOR, Catherine Peterson, global head of insights programs, said there are both positive and negative elements in the data. She suggested a greater understanding of the mechanics of re-enrollments would go a long way to convince more plan sponsors to use the helpful option, which would in turn boost outcomes for large groups of at-risk participants.

First, she said, re-enrollments drive retirement investors into a plan’s qualified default investment alternative (QDIA), which Peterson believes is generally the best place for non-professional investors to direct their money. Second, participants tend to move to a more appropriate deferral percentage under a re-enrollment, especially when plan sponsors set this as a specific goal in the re-enrollment effort. Beyond these benefits, Peterson noted, re-enrollments tend to see far less participant push back than many plan sponsors expect—a testament to the thirst for guidance and support across the wider retirement planning marketplace.

She said sponsors should feel confident enough in their QDIA designation decision that seeing a majority of the plan’s assets and future contributions move into the option won’t cause concern—and the selection and ongoing monitoring processes must be carefully documented. Sponsors should also set a default deferral rate they would be comfortable seeing much or all of their plan population take up. When all these elements come together, a re-enrollment can completely reinvigorate a struggling plan, Peterson said, driving participant rates up to 80% or 90% in many cases.

NEXT: What’s holding sponsors back?

“Misalignment still appears to exist between the retirement outcomes plan sponsors want to help employees achieve and the relative importance they assign to different plan goals and success criteria,” Peterson explained. “While many plan sponsors have taken steps to strengthen their plans, our data shows there is still room for improvement.”

Twelve percent of plan sponsors said they have considered but skipped a re-enrollment because the strategy is “too risky from a fiduciary perspective.” This is despite the fact that the Department of Labor (DOL) has established a safe harbor under the Employee Retirement Income Security Act (ERISA) specifically for sponsors directing participant dollars into a properly constructed QDIA.

“It’s disappointing to see this group hesitating because of perceived fiduciary risk,” Peterson said. “At the same time, it’s not surprising, given 53% of respondents are not aware of the potential to receive fiduciary protection for conducting a re-enrollment, under the DOL safe harbor.”

Also holding plan sponsors back from doing more could be the strong focus on participant choice versus plan sponsor direction, Peterson said. Less than half (44%) of respondents describe their philosophy on driving participant decisions as “proactively placing participants on a strong savings and investing path.’

“We hear from plan sponsors every day that they encourage participants to save and invest wisely, but the reality is participants just aren’t doing it themselves,” Peterson warned. “Plan sponsors have an opportunity to set participants up for a higher likelihood of success by implementing strategies that proactively place participants on the right path.”

To access the full whitepaper and to explore the findings by plan size and theme, click here. 

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