Employees’ Improved Finances Mean More Demand for Financial Wellness Tools

Two-thirds of employees surveyed said having access to a financial wellness program would make them more likely to stay with an employer.

Plan sponsors have a golden opportunity to assist participants in making lasting retirement planning decisions to achieve optimal outcomes, according to the 2022 annual John Hancock “Retirement Stress, Finances, and Well-Being” report.

The report found that 89% of respondents say it is important for employers to provide financial wellness programs, and 66% said having access to financial wellness programs would make them more likely to stay with the employer.

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Plan sponsors are also presented with an opportunity to buttress participants’ retirement readiness during the COVID-19 pandemic—when some workers’ financial situations improved—with additional wellness tools and support.  

“Uncertain economic times often cause people to adopt positive financial behaviors in the short term,” says Sue Reibel, CEO, John Hancock Retirement. “This fact, combined with the unique situation of COVID-19 greatly reducing the opportunities to spend money, found many retirement savers in a stronger financial situation than they were pre-pandemic. There is a clear opportunity for employers to keep this momentum going by offering support to employees to help them make sound investment decisions with confidence, ultimately reducing their financial stress.”

These trends present plan sponsors with financially engaged employees who are looking for tools to build, protect and nurture a retirement nest egg. Workers want to improve their financial well-being, as 82% report wanting to be more confident making financial decisions.  

Employees’ average financial confidence in 2021 was 69%, compared with 66% in 2020, according to the study. Additionally, 34% of participants expect conditions to improve in the coming year rather than worsening, compared with 20% who feel pessimistic and 46% who feel things will remain the same. John Hancock found that personal financial confidence has reached levels not seen since 2018.

Despite employees’ growing confidence, financial stress remains a significant issue, as 72% of respondents reported feeling stressed, and 58% of workers said finances are a cause of stress. 

“The takeaway of this year’s report is the paradox that we have actually seen improved savings and confidence in personal financial situations in an ongoing pandemic,” says Lynda Abend, head of strategy and transformation at John Hancock Retirement. “However, the positive behaviors resulting in this trend have not been fully adopted by participants. This environment presents a unique opportunity to help people bridge their short-term improvements into actions that will bring them sustainable, long-term financial health.”

The Hancock report found that 74% of respondents said financial wellness tools reduce stress.

“The opportunity for employers to help their workforce secure their financial future is a potential mitigating factor for the Great Resignation and a means to improve recruitment and retention strategies,” the report states.

Workers also want ongoing help from employers with recommendations on Social Security strategies; help forecasting retirement income; access to expertise on estate planning; the ability to assess financial wellness and gaps; opening an emergency savings account; and education savings tools.

The full report is available here.

Disadvantages to Allowing Loan Repayment or Initiation After Termination

Experts from Groom Law Group and CAPTRUST answer questions concerning retirement plan administration and regulations.

I read with great interest your recent Ask the Experts column on why many 403(b) plans allow participants to repay or initiate loans after termination of employment. However, that column did not mention any risks or other disadvantages to plan fiduciaries in allowing such loans. Does that mean there are none?”

Charles Filips, Kimberly Boberg, David Levine and David Powell, with Groom Law Group, and Michael A. Webb, senior financial adviser at CAPTRUST, answer:

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Most plan features do have their advantages and disadvantages. Having said that, the reason the Experts failed to mention any disadvantages in that column is that such disadvantages are relatively minor, which is why many 403(b) plan sponsors have been able to offer loans to terminated employees for decades without increased fiduciary liability.

However, the Experts will note a few potential disadvantages of offering such loans, as follows:

1) It will presumably increase the number of terminated employees who remain participants in the plan, as some of these individuals may take a loan rather than a plan distribution. As we know, the longer a terminated employee leaves their account in the plan without seeking a distribution, the more likely they are to become a missing participant over time. However, the added engagement of the loan repayments should make it less likely for these particular terminated employees to go missing, and at any rate, the recent Department of Labor (DOL) guidance in this area should help to ensure that plan sponsors have a decent handle on addressing the missing participant issue.

2) Loans are among the most complicated transactions in a retirement plan. Thus, any plan feature that encourages loans and related repayments could increase the possibility of loan-related plan defects. However, loan overutilization is primarily an issue with active employees rather than terminated ones. Further, other loan features, such as limiting the number of loans that a participant can have outstanding at any one time, can minimize the chances for loan defects.

3) Permitting post-termination repayment of loans could mean increased administrative concerns if the plan does not otherwise permit repayment by check or electronic transfer.

 

NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.

Do YOU have a question for the Experts? If so, we would love to hear from you! Simply forward your question to Rebecca.Moore@issgovernance.com with Subject: Ask the Experts, and the Experts will do their best to answer your question in a future Ask the Experts column.

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