AS RETIREMENT PLAN SPONSORS CONTINUE TO WITNESS that employees who have their financial house in order are better able to save for retirement, financial wellness programs evolve.
For example, they are shifting from general financial education to become more tailored for different demographic groups and ages. Plan sponsors are also starting to offer financial wellness programs that motivate and prompt employees to take action to improve their financial outlook.
To achieve this, a financial wellness program needs to include an adviser or coach, some say. “There are many financial wellness programs out there, but they don’t get used unless they are paired with a coach, accountability for the participant and making the participant confident enough to use them,” says Jim McDonald, a partner with Channel Financial. “On January 2, the gym is packed. On February 2, it is empty—unless you have a personal trainer keeping you on track. The same concept applies with a financial coach.”
It is also important to suggest participant goals that seem attainable, says Kenneth Forsythe, head of products strategy at Empower Retirement. This is why Empower developed a new tool, the Next Step Evaluator, he said. Empower plans on rolling out the tool, now in pilot, to all of its clients by this coming February. “Don’t overwhelm people with the entire path they must take to achieve a financial goal,” he said. “Instead, focus on the very next step they must take, the best use of [their] next dollar. Maybe that’s establishing an emergency savings account.”
A recent report from Cerulli, “U.S. Retirement End-Investor 2019: Driving Participant Outcomes With Financial Wellness Programs,” agrees with this premise.
“Individuals must be triggered to enact changes that affect their financial lives in a positive way,” says Dan Cook, a research analyst with Cerulli. “So, providers must consistently collect data to identify engagement strategies that resonate most with specific groups and craft digital experiences through which a participant’s ‘next best action’ is only one or two clicks away.”
The Cerulli report says participants’ primary sources of financial stress are healthcare expenses, cited by 30.5%, insufficient retirement savings (25.7%), monthly bills (10.7%), inadequate emergency savings (10.6%), credit card debt (8.4%), and student loan debt (4.7%).
It says health savings accounts (HSAs) could help participants with their health care expenses, but few participants know much about them, particularly that they can use the accounts to invest. Plan sponsors should educate participants about using HSAs as a retirement benefit, starting with their triple tax advantages, Cerulli says. Moreover, sponsors should not just try to educate participants about HSAs at the annual benefit enrollment period but throughout the year.
Emergency savings has also become an important part of financial wellness programs, as the Employee Benefit Research Institute (EBRI) has found that 75% of households headed by a participant in a defined contribution (DC) plan have only three to four months’ worth of savings, which EBRI says is inadequate. Today, 20% of employers offer some type of program to help their employees have adequate emergency savings.