Data and Research March 28, 2017

Patience Needed With Financial Education Programs

A study found programs running for at least 10 years are more successful than those that have only been carried out for one to two years, and suggests this may be because employers analyze the success of these programs and adapt it as they see fit.
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Financial stress can expand far beyond people’s wallets and into their workplace. According to the latest study by the International Foundation of Employee Benefit Plans, 96% of employers indicated that employees’ personal finance issues are impacting their job performance in some way.

However, the same study found that employee financial education programs can have a major impact on bringing workers closer to financial wellness. According to the survey, 66% of employers with a financial education program in place say their employees were more financially savvy, and 71% said their employees were more prepared for retirement than when a program wasn’t offered. Of those not offering such a program, only 38% of employers considered their workforce financially savvy, and 57% of them said their employees at normal retirement age were prepared for retirement.

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Still, no two employee populations are the same and different components of financial education programs can have varying degrees of success depending on employee demographics. Nonetheless, the study concluded that the most successful programs are time-tested, customizable initiatives backed by leadership and held down with patience.

The firm found that employers reporting successful financial education programs conducted surveys to gauge their employees’ financial wellbeing and to identify the topics that needed to be covered such as investing, budgeting and saving. None of the employers with unsuccessful programs did this. Moreover, companies also saw some success by customizing these programs for different groups based on age or income level.

The most successful programs involved multiple components such as free personal consultation services, classes and workshops, web-based online resources, workbooks and calculators.

Time was also a huge factor with programs running for at least 10 years being more successful than those that have only been carried out for one to two years. One reason may be that time can provide employers with opportunities to analyze the success of these programs and adapt it as they see fit.

“‘Good things come with time’ holds true for many things, including financial education programs,” explains Julie Stich, CEBS, associate vice president of Content at the International Foundation. “A program is likely to be more successful the longer it is in place and, according to the report, it takes more than five years to be reported as successful.”

About 49% of programs running for at least 10 years were deemed successful, as opposed to programs running one-to-two years (5%) or those running less than one year (3.9%).

“Financial education programs lead to fewer employees reporting financial distress, calling in sick, being distracted and snapping at colleagues and customers,” says Stich. “And that, ultimately, means a more productive work environment.”

More information about the report “A Closer Look: What’s Working in Workplace Financial Education?” can be found at ifebp.org.   

Compliance March 28, 2017

Taxation of Retirement Accounts Is On the Table

One ERISA industry advocate directly engaged with members of Congress says he expects more proposals to emerge from Republicans seeking to “significantly alter our retirement system,” most likely as a part of tax reform. 

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Will Hansen, senior vice president of retirement policy for the ERISA Industry Committee, is among the long list of Washington policy watchers who have pretty much given up making strong predictions about what may unfold in Congress over the coming years.

Hansen agrees with many others who have suggested in conversation with PLANSPONSOR that today’s political environment is equal parts fascinating and frustrating—infused with just about as much uncertainty as at any time in recent memory. After all, who would ever have predicted that House Republicans, after successfully voting to overturn Obamacare literally dozens of times while the Democrats still held the White House, would in fact fail to do so once a president from their own party took the reins?  

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“Conventional political wisdom has all but broken down,” Hansen observes. “Unfortunately this is happening at a time when a big shift is going on in the way people work and in the way they save for retirement.”

Hansen participated in the 2016 PLANSPONSOR National Conference, where he gave a presentation with Tami Simon, of Buck Consultants, on the emerging “gig economy.” He agrees that this topic has actually moved to the backburner given more recent political developments.

“It may not be a hot topic of conversation for lawmakers, but the outlook for work and retirement is shifting in a broad way for Americans,” he continues. “Unfortunately it has really only been a quiet issue, when viewed from the legislative front. There is not enough conversation going on around the question, how do we alter our retirement policy to adapt to an independent contractor-dominated workforce? The natural legislative response should be moving towards open MEPs and that type of an approach, making it easier for those in this situation to be able to save. This has been pushed to the backburner at least in recent months.”

NEXT: Assessing the prospects for tax reform 

Hansen says his recent meetings on Capitol Hill have left him with the expectation that “we will start to see proposals soon that will have a number of provisions—good and bad—that alter the retirement system. Some of this may have to do with open MEPs, but really there is a lot on the table that is being considered.”

Of course, what gets proposed and what can get passed are two different matters—but more (and more aggressive) proposals will start to emerge imminently, Hansen expects.

“Based on the most recent health care debate, it is reasonable to predict that any major tax reforms will be very difficult to accomplish,” he says. “On health care there is a complicated market and ecosystem, but looking at tax reform, it’s all that much more complicated even than health care. There are that many more players in the room and a lot more to be considered even than in health care.”

Based on the climate and mood on the Hill, Hansen “does not believe major tax reforms can be completed if there is not some sort of massive change in the way that the administration and Republicans work with each other and across the aisle.”

Hansen further observes “it can be surprising to realize just how much diversity there actually is within both of our political parties.” Concerning the governing Republican majority, on the right there are groups like the Freedom Caucus, and on the other side are more moderate Republicans concerned about appearing too conservative in swing districts. “If Congress is going to get anything done it very well may have to be bipartisan.”

Hansen concludes it is “unfortunate there is little evidence that our political leaders are having an honest, well-thought-out discussion on retirement policy in general. It has been generations since this happened. There are certain members in the Senate who have put forth some proposals, thinking back to last fall, which we see as having good and bad implications for plan sponsors. Other than that, the conversations going on over on Capitol Hill do not really grasp the crucial importance of the ability of an individual to invest pre-tax for retirement.

“And so we have to work hard to prevent Congress from starting to think about these incentives as possible sources to make changes to pay for something else—which would be similar, frankly, to the way many of them seem to view the Pension Benefit Guaranty Corporation premiums. The thing is, not many people are retirement policy experts on Capitol Hill … so they would rather avoid it than tackle it.” 

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