Participants June 12, 2018

When Saving More Harms Workers’ Financial Future

In the DC retirement plan industry, it is simply taken for granted that everyone should be saving more and that everyone should save as much as they possibly can; commentator Andrew Biggs offers some important caveats to the seemingly sensible recommendation.

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Conservative commentator Andrew Biggs first started studying Social Security close to 20 years ago, beginning at the Cato Institute before moving to the Social Security Administration (SSA), where he spent five years.

By the end of his tenure at SSA, he ran the Office of Policy, eventually moving on to help pilot President George W. Bush’s Commission to Strengthen Social Security.

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“So yeah, it’s been a long and sometimes tortured history, for sure,” he jokes. “But I should say I have enjoyed the work and the people I work with. This is a pretty small and insular community working closely on these topics. There are some disagreements that can get pretty heated, but for the most part, people tend to get along and listen to each other’s ideas.”

Retirement and Social Security is “a great topic to work on,” Biggs adds, “because it ranges across so many areas and because it is very direct and important to people.”

Thinking back on two decades’ experience, one high level comment Biggs makes is that a lot of people working on retirement issues take a lot of things for granted.

“For example, a lot of the time we talk about looking up to people in life who are willing to delay gratification—who can consistently put off the things they want today in order to better enjoy them tomorrow. And that’s exactly what retirement savings is about, reducing your standard of living and your quantity of consumption today in order to benefit later in life,” Biggs says. “In our industry, it is simply taken for granted that everyone should be saving more and that everyone should save as much as they possibly can. I think, frankly, a lot of this is just a simple morality play. You know, savings is good and it shows you have a good character, and therefore we should all save.”

According to Biggs, more hard-headed analysis doesn’t always say that everyone should be saving the absolute maximum they can for retirement at all stages of their life.

“You can point to a lot of examples where this is true,” he says. “One of the clearest examples is if you are a lower-income worker and you expect to remain in that position for much of your working lifetime, and you expect to get a lot of your income replaced by Social Security. There are strong arguments to be made against building up a lot of private retirement savings, in that case.”

Biggs says there are also cogent arguments to be made that many young people who are expecting to earn more in the future than they do today should prioritize other financial goals and immediate consumption needs ahead of retirement savings. Perhaps eliminating higher-interest debt or student loan debt should take precedence, or younger individuals with limited resources may prioritize buying a home in a way that makes more sense than starting to generate a retirement-specific investment portfolio.

“This is textbook economics,” Biggs says. “We don’t hear these arguments commonly because I think the rigor of analysis among many of the people who are out there telling everyone to save all they can all the time is, to put it mildly, lacking.”

Biggs points to the fact that lower-income persons are often at real risk of falling into poverty and losing what financial stability they have.

“Why would you push an individual in this situation to start to save and put themselves into greater risk of actually being in poverty right now, when the data shows that, because of the progressive nature of Social Security, he or she has a lesser chance of being in poverty once they reach retirement?” Biggs asks.  “It’s one thing if providers or media commentators encourage everyone to save in a general way, but where this more cautious thinking becomes especially important is when we range into the territory of crafting and debating public policy.”

Biggs goes on to make the argument that encouraging the lowest-income workers in the U.S. to contribute to auto-enrollment, state-run individual retirement accounts (IRAs) or even to private employer plans has something of a sinister underside. This is based on the fact that even small cash or retirement savings balances can bump lower-income people out of eligibility for supplemental benefits programs.

“It’s something to consider,” Biggs muses. “I have seen actuarial firms hired by state governments who have done studies showing these states that, if they implement auto-IRAs and there is X, Y or Z amount of take-up among low-income workers, here is exactly how much it is going to save you on Medicaid for retirees. The implication is that states will be able to means-test people out of benefits based on the dollars held in these savings plans. In turn, the individuals will see the state essentially force them to spend down those savings on their health care that otherwise would have been paid by Medicaid.”

Once these dollars are spent, only then can the individuals get Medicaid and similar means-tested benefits.

“So in this sense, among the main beneficiaries of these state-run auto-IRAs will be the state governments’ Medicaid systems, not the retirees themselves,” Biggs concludes. “If I, as a conservative commentator, came out with the idea of these state-based auto-IRA plans, people would call me heartless. But instead, this approach is being framed by this thinking that it is always better for everyone to save more, all the time.”

Biggs cites a series of papers from some Harvard economists as evidence for these conclusions.

“They looked at auto-enrollment for the federal Thrift Savings Plans, and they had access not only to savings balances but also to their credit reports. This would allow them to find out, how much does savings impact borrowing? What they showed was that the average participant is in fact saving more, but at the same time, the average debt has climbed by about 85% of the amount of the increased savings,” Biggs explains.

Interestingly, the Harvard study looks at credit card debt, auto-loan debt and mortgage debt, finding that mortgage debt represents a lot of the increase in debt measured. The authors believe this fact tempers the overall concern about the increase in debt, because mortgage debt is generally better than credit card debt, but Biggs tends to disagree, “because this could signify lower down payments rather than more valuable housing assets.”

According to Biggs, the data shows that for people with a high school education or less, this group saw additional debt due to auto-enrollment shoot up by three-times as much as the amount of additional retirement savings. And it’s not all mortgages. Credit card debt and auto-loan debt is equal to the amount of retirement savings they are doing.

“This result holds outside the Thrift Savings Plan, naturally,” Biggs concludes. “It puts the responsibility on governments and employers with workers who are in the lowest income brackets to ensure they are not falling victim to what seems like common sense thinking about promoting savings. Retirement programs should consider how Social Security will influence the income replacement of these workers. Ultimately, if we think there are too many retirees in poverty, we need to raise Social Security benefits for lower-income people. It won’t even be that expensive to do.”

Products June 11, 2018

Groups Issue Employer Guide for Implementing Wellness Programs

The guide for small and mid-sized employers is based on research that found what would promote employees’ participation in health wellness programs and barriers to employers offering and employees participating in them.

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The Interdisciplinary Center for Healthy Workplaces at University of California, Berkeley, in collaboration with the Transamerica Center for Health Studies has issued an employer guide, “Finding Fit: Implementing Wellness Programs Successfully,” for small and mid-sized companies.

In research by the groups, both individual and organizational perceptions of wellness program adoption and employee participation were explored. Employees of small and mid-sized organizations talked extensively about what would promote their participation in wellness programs. Having peers at work who share health values and interests provides important support and encouragement that helps employees increase and maintain engagement in healthy behaviors. Similarly, peer support for lifestyle changes was an important resource that enabled individuals to engage in behavior change.

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Employees’ intrinsic interest in healthy behavior at work also contributed to participation, as did their perceived need for taking time for wellness. The affordability of activities that promote healthy behavior was also important for employees to take the first step towards forming healthy habits (e.g., working out at a gym).

Employees also mentioned significant barriers that discouraged participation. They were competing demands for their time such as family responsibilities, difficulty in making wellness a priority given few hours left outside of work, lack of energy to participate due to job burnout, and wellness being a “luxury” when not even basic needs like eating or sleeping are being met. Other reasons given were a perceived lack of need for a wellness program, a distrust in the motive behind management-initiated programs, privacy concerns related to personal health conditions, and the absence of a program of activity that they would be interested in or enjoy.

Facilitators of employee participation from the perspective of organizational leaders (e.g., HR, C-Suite officers, managers) included several aspects of leadership support: leadership understanding the link between health and important work outcomes, leaders’ active support for their workers participating in wellness-related activities, leaders cultivating a culture of health, and leaders understanding how to design wellness activities that take into account the needs and preferences of employees. Organizational leaders also reported the importance of scheduling wellness events at a time and place convenient to employees and establishing expectations of reasonable work hours so that employees are more inclined to engage in healthy behaviors.

Organizational leaders also reported a recognition that the workspace itself could be designed for health and wellness such as accessible stairwells, bike racks, height-adjustable work surfaces, outdoor physical activity and healthy eating options. They also indicated that a major facilitator was establishing a variety of high-quality methods to communicate about wellness and with the right messages.

Many barriers to participation were expressed by organizational leaders. A number of factors were associated with the leaders themselves: a lack of clarity regarding the link between wellness programs and business outcomes, concerns about the funds necessary to effectively implement a wellness program, a leadership attitude that employees may take advantage of wellness events to take time away from work, the belief that taking action toward addressing employee health and well-being won’t work if the employees lack the motivation to change, the perceived lack of need for wellness programs because employees already take care of their  own health, and concerns about liability.

One of the most prevalent issues mentioned by organizational leaders was the lack of personnel to “own” wellness initiatives and take the lead. Organizational leaders also cited other problems such as wellness-related events being scheduled at inconvenient times during work or after work, and the type of work employees perform does not allow them to participate during work hours. The lack of leaders’ active and consistent leadership support for employee participation and the absence of a culture of health were also mentioned as barriers.

Many structural and operational barriers were mentioned: the lack of financial resources to support wellness initiatives, the expectation of long work hours, bureaucratic and logistical issues that prevent or discourage wellness activities from being scheduled or communicated in a timely manner, and employees occupying multiple roles in the organization which limits their ability to participate. Finally, confusion about benefits that can be provided by the health insurance company to assist employees’ wellness and the failure to take full advantage of health insurance company benefits add to the barriers to employee participation.

The employer guide leads employers through a series of assessments which will provide feedback regarding their readiness to create a wellness strategy, their ability to craft a strategy that works with their organizational constraints, and the degree of fit between their employees’ wellness needs and wellness solutions. “Careful and thoughtful responses to these questions will be the key to your success in using this Guide,” the centers say.

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