Beyond Auto-Enrollment: Financial Wellness Education

Automatic retirement plan features, managed accounts and advice address the fact that many retirement plan participants want to be shown or told what to do when it comes to saving and investing for retirement, but do not address all the financial decisions they need to make to ensure good outcomes for their financial future.

Travis Freeman likes to tell this story: When the husband of an employee at a client’s firm lost his job, the couple debated withdrawing funds from his 401(k). But thanks to the wife’s financial wellness training, they made a better choice.

Consulting with an expert in a follow-up to a financial wellness education session, they learned she could net $350 more per pay period, just by changing her withholding status. “That education alone probably saved them $4,000 to $5,000 in taxes and penalties,” says Freeman, president of Four Seasons Financial Education. “That doesn’t include the money they wouldn’t have been able to grow again.”

Multiply this good outcome by millions of plan participants making similar wise financial choices, and the nation’s retirement readiness prospects could look much rosier.

Financial wellness education can help employers too. Last year, a survey of HR professionals by the Society for Human Resource management found 85% of employers say when employees are financially stressed, their productivity decreases. Financial wellness program provider Financial Finesse recently reported that 85% of employees report at least some level of financial stress, and Pew research finds at least four in ten employees suffer angst over approaching retirement with too little savings.

“Financial stress has an overwhelmingly negative impact on employees, and it’s something that affects almost all workers of all levels of income at some point in their career,” says Jennifer Benz, of Jennifer Benz Communications. It may, for example, keep older worker from retiring.

To ease that stress, many companies—and plan sponsors—have begun looking for solutions. The most publicized—and perhaps most promising—is financial wellness education.

Financial wellness, according to Freeman, is the next phase of a workplace trend starting about 15 years ago. “It began with [a focus on] physical health. Then mental health was added. Then [employers] started to realize the issues people faced that caused physical ailments, that caused anxiety, sleep loss and depression are often related to money.” Wellness programs must cover all three dimensions for employees to gain full benefit, he says.

Companies of any size can serve up financial wellness training, but experts agree: A one-shot presentation is far from enough. “You can’t just do a lunch and learn and call it quits,” Freeman says.

Each well-thought-out program will be different, tailored to a company’s unique employee base and needs, says Benz. A small to midsize firm may be able to create the program in-house or with help from a freelance communications expert or small marketing firm, then kick it off at a common meeting or fair. Those could be staffed by “niche vendors,” invited to discuss their specialty such as debt consolidation or credit counseling. The campaign may incorporate programs already in place at the company but underused, she says. Large employers, on the other hand, may have their go-to communications firm spearhead an original financial check-up campaign directed at thousands.

“What’s important to keep in mind with financial wellness is there’s not one way to tackle this,” Benz says. “The programs will look radically different at one employer than another.”

To aid companies of all sizes in devising a financial wellness strategy, her firm and State Street Global Advisors just published a white paper on the subject. “6 Steps to Bring Financial Wellness to the Workplace” lays out the process, from defining what financial wellness means for an organization to choosing the type of solution or tool best-suited for a firm’s challenges to best practices for determining how to shape the program.

When developing any education for a work force, the best place to start is with the workers themselves. This could involve holding focus groups or performing a simple survey, but also studying salary and health plan data, and 401(k) use, Benz says. “Really dig into what’s happening with their benefits,” she says. That combined feedback and information should help pinpoint the cause of employees’ dis-ease.

Once the analysis is done, the plan sponsor can present those findings to its plan adviser or provider, which may already have educational materials that apply, says Sean Ciemiewicz, a financial consultant and a principal at Retirement Benefits Group (RBG). “Most providers are doing a great job of providing the material for the plan sponsor to use,” he says. Some companies, such as Schwab or Fidelity, that offer their own educational programs, will work in tandem with the plan sponsor, he says, when the programs are complementary.                         

Benz recommends targeting employee needs with just a few specific actions or programs at a time. “Move the needle in one area, and then reassess, rather than trying to tackle everything employees might possibly need help with at once,” she says.

The first employee engagement is often in a workshop, and Ciemiewicz’ firm collaborates with plan sponsors to develop these, customizing them based on employee profile and industry—e.g., younger vs. older, manufacturing company vs. law firm. He, too, finds surveys invaluable when building a program. “It helps us to determine the best course of action.”

Whatever the subject, Ciemiewicz stresses the importance of presentation—and here he doesn’t mean impressive materials. Talk about investing and mutual funds can put people to sleep. “Make it fun,” he says. “If you don’t, the information goes over people’s heads in a hurry.”

Freeman, too, advises keeping the presentation lively—especially vital with PowerPoint webinars, which is Four Seasons’ initial training tool.

After a financial wellness education session, follow up is crucial. The goal is to change behavior, and this takes ongoing effort, from both employee and plan sponsor alike. Freeman’s firm recommends some form of educational outreach every three to six months. He says, “education isn’t hard for plan sponsors or plan advisers—the hard part is getting employees to use the education to make meaningful changes.” They also need guidance and accountability throughout the year. “It doesn’t stop. It is annual and ongoing,” he says.   

Ciemiewicz concurs. From his background in marketing, he knows inertia is hard to beat. “It takes a good six or seven times to start getting something to have an impact or get someone to take a look at something,” he says. “We can help [a company] with that, but they can do it on their own, too, where they are regularly providing little snippets of information.” The company can periodically send out emails or single-sheet newsletters, discussing different financial wellness topics. “As long as it just catches employees’ attention, it’s going to continue to keep it top of mind,” he says.

Making one-on-one counseling available rounds out the wellness program. The counselor could be a certified financial planner (CFP) or even the plan’s adviser in a non-fiduciary, purely tutorial role. This person can help the employee identify any bad financial habits and formulate goals, then monitor his progress over time. Four Seasons provides ongoing counseling sessions with CFPs, which employees can sign up for at will. The company works exclusively via telecommunication, so the CFPs often “meet with” individuals on their lunch hour, in an office dedicated by the company and equipped with webcam and computer with online access.                                               

Financial wellness programs are typically paid for out of the company’s general budget, but if the plan sponsor needs to find another way, it might look in the Employee Retirement Income Security Act (ERISA) and its own plan document. Freeman explains that, assuming the plan document allows for this, ERISA permits paying for some educational programs out of plan assets.

The prerequisite:  The program must be anchored on retirement planning. One acceptable source of such funds would be plan forfeitures, he says. This is money left by short-term employees who paid into the 401(k) but left the company before being vested. Under ERISA, those payments may be used to pay for fees, 5500 filings or a financial wellness program, he says.

After implementing such a program, what can a plan sponsor expect in results? Neither Ciemiewicz nor Freeman is aware of any statistics that quantify such programs’ success for the employee or employer. The strategy is too new, and too many other factors can affect employee stress, for better or worse, they say.

An employer can appraise the success of its own program, however, says Benz. “The desired outcomes of a financial wellness program are that employees are less stressed about their finances and, hopefully, [that will lead to] better uses of the 401(k) or at least less bad behavior in the 401(k): fewer loans, fewer emergency withdrawals and so forth.” Each company can decide its own metrics for measuring success.

“I would say that, at a minimum, a company should monitor its results twice a year: midyear and then at the end of the year, or when it’s planning for the next year’s communication or benefits focus, to really do a deeper dive and see where the opportunities remain,” Benz adds.

“Education helps to motivate employees. Then, employers must take hold of that motivation to enact change among employees and keep them accountable,” Freeman says. “This entire process is repeated year after year. Education is the most publicized factor. However, education is an event, while wellness is a process. That’s the difference.”