Benefits December 28, 2015

More Plan Sponsors Focusing on Overall Financial Wellness

More retirement plan sponsors are beginning to consider overall financial literacy and wellness programs for plan participants.
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Financial literacy and wellness are closely related, and both can affect how a retirement plan participant manages personal finances—and how finances are managed has a direct impact on preparing for retirement.

Most workers (95%) responding to a LIMRA survey said they believe financial literacy is important, but their takeaways can vary. Just one-third (35%) feel they are moderately or extremely knowledgeable about financial products and services, and only 28% indicated they are very confident in their abilities to make important financial decisions.  

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Most employees said retirement was their top financial concern, followed by budgeting and managing debt, investments, overall financial planning, insurance, college planning and tax planning, according to Four Seasons Financial Education, a financial wellness and education services provider. 

There is generally a low level of financial literacy among Americans, even those who contribute to a 401(k) plan or other workplace-based retirement account. In a study by the National Association for Retirement Plan Participants (NARPP), fewer than half (49%) of participants correctly answered eight basic questions to assess financial literacy. 

Financial wellness through workplace programs has been gaining traction over the last year or so. Aon Hewitt found that a growing number of employers realize basic money management plays a critical role in an individual’s financial well-being. About one-quarter of employers say they’re likely to provide some assistance to employees to help with budgeting, with the goal of making sure workers are able to manage their daily living expenses.

NEXT: Ways to implement financial wellness

Plan sponsors are beginning to realize that the best-designed plan won’t work to its fullest if workers are hampered by loans and poor financial habits.

Helping a workforce learn to handle finances can raise productivity. Financial Finesse, which provides workplace-based financial education, found in a study that 85% of employees feel some financial stress, and according to Pew Research, at least four in 10 employees are stressed about an approaching retirement, usually because they have not saved enough. A study by the Society for Human Resource Management found that 85% of employers believe financial stress lowers productivity.

PwC, the professional services network, points out solving an employee’s financial issues can also help to solve his or her health issues, potentially even lowering a company’s health care costs in the long run. In fact, according to Financial Finesse, health care costs for employees who participated in a financial wellness program dropped by an average 4.5%. Costs for non-participants rose by an average 19.4%.

Typically, financial wellness programs are paid from the company’s general budget, but if plan sponsors need another way, they might look in the Employee Retirement Income Security Act (ERISA) or even their own summary plan description (SPD). Many qualified plans are designed to permit the use of plan assets for some education programs, and ERISA doesn’t frown on the practice, according to Four Seasons Financial Education.

One consideration, when implementing a financial wellness program, is that some participants may perceive such programs to carry a stigma. Jellyvision, a provider of interactive employee communication software, found in a survey that some workers believe attending a financial wellness classes might indicate a lack of financial fitness. A benefits communication specialist with the firm said he suspected there might be barriers to participating in financial wellness programs. “We know [employees] don’t like sharing health care needs with coworkers and employers, and we wanted to see if that applied to financial needs.”

Investing December 28, 2015

The Year in Retirement Investing Trends

Retirement plan sponsors have had to cope with a significant amount of market and regulatory evolution in 2015—especially change pertaining to DC investment menus. 

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From a fundamental rethinking of the role of ESG investing to ongoing money market fund reform, there was no shortage of major shifts for defined contribution plan investment menus in 2015.

At a high level, industry thinking about the retirement plan investment menu has seemingly converged around the “KISS” principle. KISS, of course, is short for “Keep it simple, stupid.” According to a variety of business leaders and regulatory experts, expansive and complicated defined contribution (DC) plan investment menus are falling out of favor about as fast as any other practice in the industry. 

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Important to note is that this simplicity is limited to the participants’ perspective; advisers and sponsors still face challenging fiduciary concerns and recordkeeping limitations in delivering simplified menus. 

Within the menu, participants are especially seeking new types of annuities and other approaches to retirement income planning beyond simply rolling over to an individual retirement account and applying the rather archaic-seeming 4% rule. In another top story for 2015, retirement income purchasers inside and outside DC plan menus finally got a small boost near the end of the year with the Federal Reserve’s 25-bps hike in its target interest rate.

NEXT: ESG paradigm shift and new money market rules 

While introducing new guidance in October, Labor Secretary Thomas Perez told reporters ESG-based investing no longer has “the cooties” from an ERISA perspective. The Department of Labor (DOL) issued Interpretive Bulletin 2015-01, a piece of guidance Perez says will significantly expand the use of environmental, social and governance (ESG) investing principles under the Employee Retirement Income Security Act (ERISA).

Other regulators impacted the retirement plan investment menu in 2015—notably the Securities and Exchange Commission (SEC). While it technically adopted ongoing money market reforms in 2014, the next several months will be crunch-time for advisers and sponsors seeking to comply with the new rules. The good news is that sponsors and advisers have until October 2016 to decide how they will address the nearly 900-pages of rulemaking. But the timeline is tighter than some may think, given the complexity of money market funds and the potential for a late-mover premium should too many sponsors wait until the last minute to make changes.

Also challenging this year were several rounds of serious market volatility, including several very large daily swings in equity values. These spurts of major market volatility have happened pretty regularly historically, but it hasn’t happened in a while, so it’s critical for participants to be reminded of the long-term nature of retirement investing.

NEXT: Retirement plans tested again and again

The principles underlying retirement plan investing were tested time and again in 2015. 

In one interesting example that has less to do with market moves or regulators, an attention-grabbing Business Insider video emerged that suggested investing in a 401(k) is “a complete waste of money” for Millennials. Unsurprisingly, journalists and finance experts rushed to attack the video’s producer and his line of thinking, but others agreed the video brought up some good points.

Looking ahead, experts are focused on an aging global investing population that will continue to dampen economic growth and keep interest rates low globally—rivaling the impact of cyclical market trends heading into 2016. Some advisers suggest they’ll be advocating for more active strategies and different asset classes in this environment. Still others are working to remind plan sponsor clients that conservative investment approaches still have a place on retirement plan investment menus.

Topics having to do with qualified default investment alternatives (QDIA) remained top-of-mind in 2015 and are likely to do the same next year. Sponsors by now will be familiar with the challenges of picking the right QDIA for a given plan—but this year saw building momentum for managed accounts and other approaches beyond the dominant category of target-date funds (TDFs).

Whatever happens with the investment markets and regulators in 2016, you can be sure to find the latest news and analysis at www.plansponsor.com. 

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