Benefits September 27, 2023

Plan Sponsors Offering Wellness Resources See Increased Worker Satisfaction

Bank of America recommends plan sponsors act to promote greater employee retirement readiness. 

 

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Employees’ financial priorities have shifted away from long-term retirement savings over the past year toward short-term financial needs, including paying off credit card debt and saving for emergency expenses, new data shows.

Economic uncertainty is causing the shift of employees’ financial priorities, according to the “Bank of America 2023 Workplace Benefits Report,” published September 26.

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For employees, saving for retirement continues to be the top overall goal, but more immediate “pressing needs” are getting prioritized, according to Bank of America researchers. Fewer employees—31%, in 2023—are prioritizing long-term retirement savings, compared with 45% last year, shifting their focus to short-term financial needs, Bank of America found.

Inflation has played a role in pushing up the focus on short-term needs at the expense of retirement savings, the findings showed. Employees have shifted financial priorities to paying off credit card debt, increasing activity to 16%, compared with 11% in 2022; and saving for emergencies, at 13% in 2023 versus 8% in 2022, data shows.

“American workers continue to feel stressed about their finances and are concerned about keeping up with the cost of living,” said Lorna Sabbia, head of retirement and personal wealth solutions at Bank of America, in a press release.

Plan sponsors can take actions that workers will appreciate in terms of managing their finances, the bank noted. The report found that 92% of employers who offer resources to manage financial well-being saw improvement in employee satisfaction.

“Companies who show a sense of urgency for their workforce by offering financial wellness programs and resources which support employees’ immediate needs and overall well-being will continue to stand out as employers’ of choice,” Sabbia stated.

For plan sponsors, Bank of America recommended employers act to support workers by promoting greater retirement readiness:

  • Offer employees digital tools that connect them to guidance and retirement income resources;
  • Expand educational programs on planning for retirement and include information on Social Security and Medicare; and
  • Work with the retirement plan benefits provider to analyze plan data to uncover disparities among different employee segments and to explore plan-design options that could help close the gaps.

Low Wellness Score

The Bank of America report found that 67% of employees in June 2023 were feeling the impact of inflation, compared with 58% in February 2022.

Inflation reached 6.4% in February 2022, lessening to 4.8% in June 2022 and moderated further to 4.3% in August 2022, according to the latest data available.  

Workers are stressed about their financial situations, with 42% rating their feelings of financial wellness as good or excellent, the lowest figure reported by Bank of America since 2010.

Feelings of financial wellness vary by ethnicity and location; the research showed 61% of Asian employees rate their financial wellness as good or excellent, followed by white workers at 44%; Hispanic at 40%; and Black workers at 35%.

The report also found that less than 25% of employees living in urban areas feel prepared for retirement, compared with 32% of suburban employees and 43% of rural employees.

Employees, themselves, favor the following measures.

  • A four-day work week (58%);
  • Guaranteed income offerings in the retirement plan (42%);
  • Wellness reimbursement (39%);
  • Family care assistance (35%); and
  • Benefits that specifically support women (27%).

Plan sponsors reported believing offering better pay and benefits than competitors, among other factors, will help their companies attract qualified candidates or increase hiring.

Bank of America sourced data for the report from an Escalent survey, a national sample of 878 employees working full-time and participating in 401(k) plans and 798 employers who offer a 401(k) plan and have sole or shared responsibility for decisions made in the plan. The survey was conducted between January 9 and February 1.

Data and Research September 27, 2023

Student Loan Repayments Expected to Derail Employees’ Retirement Savings

Nearly 75% of student loan borrowers expect that resuming payments will impact their ability to save for retirement, and some say they plan to reduce their contributions, new data shows. 

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Student loan borrowers, on average, will experience an additional $400 monthly hit to their wallets, as federal loan repayments resume on October 1 after being on pause for three years during the COVID-19 pandemic. 

Although it will likely take several months to quantify the real impact of the loan payments on employees’ savings, according to experts, several recordkeeping firms predict that this new financial burden will derail many participants’ retirement savings. Meanwhile, an attempt by SECURE 2.0 retirement legislation to help address the issue with employer contribution matches for student loan payments is still far from implementation among most plan sponsors, according to industry players. 

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After surveying more than 2,100 federal student loan borrowers, Corebridge Financial found that 75% said that resuming student debt payments will impact their ability to save for retirement. In order to make payments beginning in October, 22% said they plan to reduce how much they save for retirement, and 29% plan to reduce their emergency savings. 

In addition, 52% of borrowers said they do not think they will be able to afford student loan payments in October. Although most expect to pay the required monthly payment amount, large groups of borrowers expect to miss payments, pay less than the minimum and even to potentially default on their loans. 

The large majority, 88%, said they will look into student loan forgiveness to see if they qualify, according to Corebridge’s study.  

Gen X Workers’ Financial Strain 

A new Nationwide study also delved into the impact the loan payments will have on employees aged 45 and over. While many assume younger employees are impacted the most by student loans, more than one in 10 employees aged 45 and older currently have student loan debt. Most of these individuals (61%) agree that the reinstatement of student loan repayments has negatively impacted their financial stability and long-term planning. 

More specifically, 29% of this population said they are planning to adjust their retirement plan contributions in order to keep up with their student loan payments, and 18% said they have already done so.  

This statistic may be concerning to plan sponsors, as 401(k) loans are already on the rise and have consistently increased since a low in 2020, though they have yet to reach pre-pandemic levels, according to new data from T. Rowe Price. Emergency savings also are low, with 70% of participants reporting that they have not saved six months’ worth of expenses for an emergency. Nearly half said in the T. Rowe survey that they have less than $1,000 saved for unexpected expenses. Nationwide also found that 59% of borrowers aged 45 and older are considering additional sources of income or side gigs to offset the financial strain caused by student loan payments in order to maintain their retirement savings contributions.  

According to U.S. Census data, there are 140 million Americans aged 45 or older. With 12% of this group having student loans, as reported by Nationwide, there is a potential for nearly 17 million older Americans to have financial decisions affected by the payment resumption.  

Because of this long-term impact on their savings, 85% of employees aged 45 and older with student debt said they would be interested if their employer offered a retirement plan match to their loan repayments, Nationwide found.  

According to a recent Goldman Sachs Asset Management report, only a handful of companies are planning to implement the 401(k) student loan matching provision in the SECURE 2.0 Act of 2022. David Stinnett, principal of strategic retirement consulting at Vanguard, says plan sponsors should take a “data-driven” approach to assessing whether they should implement this SECURE 2.0 provision and survey their population to see if student debt is affecting workers’ plan participation and savings rates. 

Considerations for Plan Sponsors 

Stinnett says that, historically, workers in their 20s and 30s, as well as those 45 and older, have continuously participated in 401(k) plans at higher rates, despite the fact that student loan burdens have steadily risen during that time period.  

“Up until now, having an increasingly heavy student loan burden has not resulted in a reduction in participation and savings rates, so that’s a reason for optimism,” Stinnett says. “However, it’s important to realize that these positive trends don’t necessarily need to last forever.” 

For plan sponsors at this time, Stinnett says if they have been on the fence about adding advice and financial wellness services to their plan, they may want to “move it up the priority list” for their next committee meeting. He says these services can help participants balance long-term savings needs with short-term debt payments. 

Jesse Moore, senior vice president and head of student debt at Fidelity Investments, said Fidelity offers free resources and tools to help individuals understand their repayment options. The firm also partners with employers to offer repayment benefits for their employees.  

“It will be important to watch 401(k) loan rates amongst student loan borrowers once payments resume, as not only will these borrowers have fewer alternatives to turn to in difficult times, but they could also fall back into a pattern of saving less and withdrawing at a higher rate,” Moore said in an emailed comment. 

Despite the government shutdown that could occur on October 1 if Congress does not pass a budget resolution, student loan payments will still be due, as most are processed by contractors. However, because most Department of Education employees would be furloughed, borrowers may have a hard time getting answers if they have questions or specific needs. 

Some borrowers anticipate delays, as certain processes require loan services to consult the DOE. For example, the department is required to confirm eligibility for borrowers using Public Service Loan Forgiveness aid.  

Fidelity has published guidance for borrowers to help them prepare for the resumption of payments. 

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