Spare No Expense: The Priorities Competing with Employees’ Retirement Budget

The financial effects of the COVID-19 pandemic were wide ranging and often devastating. Tracking employees’ retirement contributions in the last sixteen months was like watching Jurassic Park: they spared no expense when investing, but now contributions are leveling out and sponsors can’t help but wonder what dinosaur—I mean, expenditures, ate that money. So what gives? Here’s why contributions may have risen then dipped, and a few ideas for how sponsors can engage with their employees to help get them back on track (or keep them there).
‍

Rent

Some tenants weren’t able to pay rent as they lost their jobs during the pandemic, and coupled with eviction moratoriums, landlords (particularly small landlords) were often losing money. Coupled with the lack of demand as city dwellers moved to the burbs, landlords started offering incentives like a free month or reduced rent for a year which put more money in the pockets of those who were still employed. However as yearlong leases made during the pandemic are now timing out, some landlords are increasing rent significantly.
‍

Post-Pandemic Spending

There’s also post-pandemic spending; after all, most people are excited to go do things they couldn’t do for over a year and are spending money that they may have otherwise saved because they’re tired of being cooped up. Post-pandemic short term budgeting seminars can help employees increase their short-term “fun budget” so they can finally grab brunch, go on vacation, or hire a personal trainer to prepare for the Broad Street Run while also maintaining increased savings (say, 12% instead of 15% during the pandemic, and up from a pre-pandemic contribution of 10%).
‍

No More Telehealth Coverage

Telehealth was covered in full for many (or drastically reduced), but now the extra Covid-related coverage offered by sponsors is ending. If financially viable, companies may want to consider extending some or all of the additional healthcare offerings made available during the pandemic. The lower threshold of financial accessibility allowed more employees to get the mental and physical care they needed. Not only does this result in a healthier, happier workforce (and add a great incentive for prospective employees), but the money that employees would otherwise put towards copays can be redirected into their HSA or 401(k).
‍

Commuting Costs

Now that in-person and hybridized work has begun, commuting costs are back. Weekly or monthly bus and rail passes can cost hundreds of dollars, and those who drive to work may have saved money working from home by avoiding paying for gas and tolls, but also by reclassifying their car(s) from a commuter vehicle to a “pleasure use” vehicle, AKA a personal car that’s specifically not used to commute back and forth to work. Hybrid in office/at home work options can help employees save on transit costs, as can offering commuter benefits like public transit pass programs that allow employees to pay for public transit weekly or monthly passes using pre-tax dollars.
‍

Childcare

As childcare facilities reopened, parents now have the ability to send their young children back to daycare or hire babysitters, which can be extremely expensive. Households where income was reduced may be feeling the strain in particular, even and especially during the pandemic when privatized pod learning became popular. Many parents may not know about the increased availability of child tax credits that are part of the American Rescue Plan, for example. While the payments should be automatic, there are still parents who haven’t recently filed tax returns, take turns filing for the returns with a former spouse or partner, or had a change in income who may benefit from additional information and resources, especially when it comes to changing their paycheck tax withholding elections or opting out of monthly payments.
‍

Food

There’s a spectrum between those people who bring lunch to work every day, and the people who get takeout when they go to the office. Those who tend to grab breakfast, lunch, or a few drinks at happy hour after work when they’re in the office were the most likely to see an increase in savings simply based on availability (especially in the early days when many restaurants were completely closed, even for takeout and delivery). Now that restaurants are open and many are back in their office, employees’ takeout habits may be good news for the recovering restaurant industry but bad for their wallets. Needless to say, this may be a prime target audience for a lunch and learn!
‍

Pandemic Expenses: Lost Income, Medical Bills, and more

Not to be forgotten are those who fall into the opposite category, where they decreased or even halted retirement contributions over the last year and a half because redirecting those funds became an essential part of putting food on the table. Perhaps their spouse or partner lost their job, had their hours decreased, or quit (remember our article about how women were driven out of the workforce at record numbers because of the lack of childcare?). Others may have to pay off Covid-related medical expenses, rented a secondary apartment for partners who were frontline workers who may have been exposed to Covid, reduced their working hours to care for children or sick loved ones, and contractors may have lost work as organizations cut expenses. It’s equally as important for sponsors to acknowledge those who may have catching up to do and provide resources for employees across the socioeconomic spectrum.  

There are dozens of reasons why employees who were able to contribute more in 2020 may not be doing so in 2021. Like any good relationship coach would say, it’s not sponsor vs. employee, it’s sponsors and employees vs. the problem (the problem here being a financially secure future…or lack thereof). Learning what’s driving these contribution drop-offs is the first step in addressing them and moving forward in a way that benefits employees long-term financial wellness.

‍

‍

‍

‍

‍

‍ ‍

‍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.