Administration October 24, 2016

Making Financial Wellness ‘Fun’ Could Boost Retirement Savings

Plan sponsors have been moving away from traditional financial-wellness education methods and utilizing tools like apps and games to help participants manage their finances and prepare for retirement.
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Financial stress is on the rise in 2016 with 52% of employees reporting difficulty managing their finances, according to PricewaterhouseCoopers’ 2016 Employee Financial Wellness Survey.

Research by insurance-brokerage firm Lockton also shows that one in five employees reports feeling stressed, and the top two drivers of this are their jobs and finances. This results in lower productivity and higher use of sick days among those with high levels of financial stress, Lockton finds.

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According to the research, financial stress costs employers $413 per employee per year. The firm’s survey suggests that respondents with high levels of stress were more than four times as likely to suffer from symptoms of fatigue, headache, depression, or other ailments. Financially stressed employees were also three times more likely to take prescription drugs for chronic illness. Workers with high financial stress were also twice as likely to use sick time when they were not ill.

Lockton’s research also indicated that less people with high financial stress invest in employer-sponsored retirement plans (60%) compared to those with low financial stress (96%). The sources of employees’ financial stress vary underscoring the importance of financial wellness. Lockton’s survey showed two out of five employees reported credit card debt they can’t pay off, and one out of five had student loan debt— which has been a huge barrier to retirement saving for many Americans.  

Still, retirement plans can be a very important aspect of financial wellness. Only 4% of respondents said having a retirement savings plan does “not at all” ease their financial concerns, while 52% said it helps a great deal. Moreover, people who reported being on track or ahead in saving for retirement consistently reported fewer ailments, according to Lockton.

But with all the gloom in financial wellness research, some plan sponsors have been turning to a lighter side: games, apps and other digital tools that let employees manage their finances in non-conventional and interactive ways.

NEXT: Making financial wellness fun

Lockton, for example, puts a digital spin on the game of “Life.” Participants are asked to input certain figures such as savings, debt, and investment allocations before playing a personalized game that takes them through different life stages such as the decision to buy a home, or a sudden market turn or hospital expense. Based on how they play, the system shifts their finances and presents them with links to different service providers that may meet their needs. These can vary in services from student-loan repayment assistance to insurance coverage.

Donn Hess, senior vice president of Lockton, tells PLANSPONSOR that the project has recently been launched and met with general interest.

Financial consulting firm TIAA has been provided gamification services for about five years with much success, according to the company’s chief marketing officer Connie Weaver. The company’s What’s Your Financial IQ program offers educational tools and a digital quiz covering different financial topics such as taxes and investing. According to the firm, the game “encourages participation through customized promotional materials and iPad incentive (3 iPad winners for each challenge).”

Sources say financial wellness programs need more than just education to succeed.

Weaver says the program has led to much engagement, and some interesting findings. “We thought Millennials would engage more than other generations,” says Weaver. “But the truth is we got tremendous engagement among all generations.”

TIAA says the success of this program led to the launch other game-based tools like the Square Your Savings program which encourages participants to engage in “savings missions.”

Prudential has also been reporting success with digital tools aimed at influencing participant behavior. The firm says it has been using the app AgingBooth to motivate people at benefits fairs by showing them what they may look like as they approach retirement. The firm also says its retirement income calculator has been a big hit.

“Our retirement income calculator has very strong usage and it drives behavioral action,” says Harry A. Dalessio, senior vice president, sales and strategic relationships at Prudential. “Every participant on our recordkeeping platform who uses that tool increases their contribution rate on average by 5%.”

But financial wellness tools are not one-size-fits all solutions. Hess suggests that employers need to work with their plan sponsors and recordkeepers to dig into their employees’ demographics and identify what financial wellness services would best serve their employees.

Weaver believes these tools may aid in that goal. She says the diagnostics the firm has recovered from user engagement has helped the company pinpoint the areas of financial wellness that are most challenging to participants, thereby creating more effective programs. 

Compliance October 24, 2016

IRS Relaxes Loan and Hardship Procedures for Hurricane Matthew Victims

A retirement plan can allow a victim of Hurricane Matthew to take a hardship distribution or borrow up to the specified statutory limits from the victim’s retirement plan, or allow a person who lives outside the disaster area to take a loan or hardship distribution to assist a family member who was a victim.
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The Internal Revenue Service (IRS) announced that defined contribution (DC) employer-sponsored retirement plans can make loans and hardship distributions to victims of Hurricane Matthew and members of their families. This is similar to relief provided this summer to Louisiana flood victims.

Participants in 401(k) plans, employees of public schools and tax-exempt organizations with 403(b) tax-sheltered annuities, as well as state and local government employees with 457(b) deferred-compensation plans, may be eligible to take advantage of these streamlined loan procedures and liberalized hardship distribution rules. Though IRA participants are barred from taking out loans, they may be eligible to receive distributions under liberalized procedures.

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Retirement plans can provide this relief to employees and certain members of their families who live or work in disaster area localities affected by Hurricane Matthew and designated for individual assistance by the Federal Emergency Management Agency (FEMA). Currently, parts of North Carolina, South Carolina, Georgia and Florida qualify for individual assistance. For a complete list of eligible counties, visit https://www.fema.gov/disasters. To qualify for this relief, hardship withdrawals must be made by March 15, 2017.

The IRS is also relaxing procedural and administrative rules that normally apply to retirement plan loans and hardship distributions. As a result, eligible retirement plan participants will be able to access their money more quickly with a minimum of red tape. In addition, the six-month ban on 401(k) and 403(b) contributions that normally affects employees who take hardship distributions will not apply.

This broad-based relief means that a retirement plan can allow a victim of Hurricane Matthew to take a hardship distribution or borrow up to the specified statutory limits from the victim’s retirement plan. It also means that a person who lives outside the disaster area can take out a retirement plan loan or hardship distribution and use it to assist a son, daughter, parent, grandparent or other dependent who lived or worked in the disaster area.

Plans will be allowed to make loans or hardship distributions before the plan is formally amended to provide for such features. In addition, the plan can ignore the reasons that normally apply to hardship distributions, thus allowing them, for example, to be used for food and shelter. If a plan requires certain documentation before a distribution is made, the plan can relax this requirement as described in the announcement.

Ordinarily, retirement plan loan proceeds are tax-free if they are repaid over a period of five years or less.  Under current law, hardship distributions are generally taxable. Also, a 10% early-withdrawal tax usually applies.

Further details are in Announcement 2016-39. More information about other relief related to Hurricane Matthew can be found on the IRS disaster relief page.

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