Fink said that workers' ‘lack of preparedness for retirement is fueling enormous anxiety and fear, undermining productivity in the workplace….’" Recent studies show that almost a third of all respondents said they were stressed about their finances “constantly.” And 80% of all employers surveyed noted that their employees’ financial circumstances impacted their work.
Once it’s signed into law, the Secure Act 2.0 will make it increasingly attractive to auto-enroll your employees into your defined benefit contribution plans, like 401(k)s and 403(b)s.[1] Many companies are going a step farther and auto-enrolling their employees in financial literacy programs (FinLit). Plan Sponsors may want to take note, not just for how your competition may be enticing employees, but also, how those programs can increase productivity. Here’s the Who, How, Why and What of it all.
Who: Large companies are increasingly extending new benefits to their employees that include financial wellness components.[2] Recent surveys show that slightly more than half of all employers are offering some amount of financial wellness or financial literacy education for employees.[3]
How: Companies often hire outside specialists to provide uniform programs. For example, more than 4,000 companies use Dave Ramsey’s Smart Dollar Program, including Costco. “200-plus companies have contracted SunTrust Financial to teach its Momentum onUp program, up from only a dozen just three years ago. One of the newest providers is BrightPlan, a lender that has veered into the financial literacy space.”[4]Using an outside contractor can help free up staff administrative time. The cost to employers can range from a set package price overall to a per employee cost per month. The later may range between $10 to $30 per month for each enrolled employee.
Some programs are entirely online. Many offer segmented programs, like modules or a specific series on a topic, that can help employees fit these programs into a full schedule. FinLit programs may also integrate into an employee’s actual financial portfolio so that they can see the results of their education process.
Why: Aside from offering an attractive benefit to employees as part of a recruitment or retention package, FinLit programs provide significant benefit to employees. Programs can help companies hold on to their workforces. They're said to boost productivity and cut healthcare costs because employees are less stressed personally. “BlackRock CEO Larry Fink said that workers' ‘lack of preparedness for retirement is fueling enormous anxiety and fear, undermining productivity in the workplace….’"[5] Recent studies show that almost a third of all respondents said they were stressed about their finances “constantly.” And 80% of all employers surveyed noted that their employees’ financial circumstances impacted their work.[6]
What: There is a spectrum of financial wellness programs that companies are offering employees. Some provide FinLit classes only. Others include more in-depth work. Programs focused on FinLit emphasize how employees can save, invest, manage, and understand their money more effectively. They include topics employees may not have learned in school or through their families. This includes more than basic budget-making but may also include how to reduce debt or save for large future purchases like a wedding or a house.
If you are thinking of hiring one of the outside consultants, or creating your own financial wellness program, the experts at the Consumer Financial Protection Bureau (CFPB) have suggestions. That organization, a government agency created during the 2008 financial crisis, has five principles they have found to ensure a FinLit program is effective. They are:
1) Know your employees and their families. “Financial education programs are more effective if they are matched to people’s specific circumstances, challenges, and goals.”[7] They recommend using questionnaires and assessment tools before beginning your programming. They also provide tools to help reduce bias and increase awareness around diversity.
2) Make it relevant and recent. They recommend encouraging employees to set a goal for the near-term that they can use to help digest the financial information. Automatic reminders about action steps or alerts about progress towards their goals can support this kind of goal setting.
3) Focus on skill building, not just budgeting. The CFPB recommends skills such as comparison shopping, finding reliable information, and using tracking tools.
4) Build momentum and fuel motivation. First, make it easy to bag a success. CFPB recommends finding one small item employees can achieve easily that helps build momentum. This may be as simple as a $50 total in a savings account. Employees may be more likely to continue with financial education if they see more of their coworkers completing it. This builds momentum. Group celebration of individual successes, like through a recognition program, can also help fuel motivation to stick with the program and accomplish goals for other employees.
5) Make it easy to fly the W. Employees will continue to engage with financial literacy programs if they feel like they are winning. Athletes call this flying the W flag (for a win). This could be as simple as identifying times of year that can be challenging to employees (like the holiday season or planning for summer vacations). Employers who help employees during those more challenging times via text messages or encouragement programs can help employees feel like they are making good decisions, which then strengthens their participation in the financial wellness programs – and leads to more “wins.”
[1]See our homepage at www.bcgbenefits.com for an in-depth look at the Secure Act 2.0. For more on auto-enrolling, check out our past articles https://www.bcgbenefits.com/blog/new-plan-designs and https://www.bcgbenefits.com/blog/401k-participation-rise
[2] https://www.shrm.org/executive/resources/articles/pages/financial-wellness-helps-business.aspx
[3] https://www.integrity-data.com/blog/why-financial-education-is-a-growing-employee-benefit
[4] https://www.shrm.org/executive/resources/articles/pages/financial-wellness-helps-business.aspx
[5] https://www.shrm.org/executive/resources/articles/pages/financial-wellness-helps-business.aspx
[6] https://www.integrity-data.com/blog/why-financial-education-is-a-growing-employee-benefit
These articles are prepared for general purposes and are not intended to provide advice or encourage specific behavior. Before taking any action, Advisors and Plan Sponsors should consult with their compliance, finance and legal teams.
Before leaping into the unknown, we recommend a thorough examination of your plan. Because we are experts in the field, we know the marketplace and know what your existing vendor is capable of offering. Through this examination, we can help you optimize the service you receive.
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