14 Jun. 2017 | Comments (0) Share Follow @Conferenceboard
Financial problems are a major source of anxiety for many Americans. Employers are recognizing that anxiety about finances is leading to distraction and loss of productivity. Respondents to a recent survey on financial wellness said that they spent an average of 13 hours per month worrying about personal money matters at work. The same survey showed the median of 5 hours, indicating that some employees are spending a lot more time than others.
Employees who are apprehensive are often concerned about immediate problems such as paying their bills, the current emergency, or, dealing with immediate debts. Their thinking revolves around day-to-day issues. Yet, at the same time that many Americans indicate they are anxious about money, they are confronted with increasing responsibility for financial planning and retirement security as defined benefit plans have been replaced by defined contribution plans that require their active involvement. Individuals vary greatly in their financial knowledge and skill, and many lack basic financial literacy; making it very difficult to do the analysis needed to understand choices.
Employers seeking to provide benefits that effectively deal with employee needs are increasingly embracing the concept of “Financial Wellness.” Employers know that their employees often look to them for resources to help them make optimal choices and relieve financial stress and anxiety. In addition, many employees have no source of financial advice other than what they get from their employer. With these trends in mind, the Society of Actuaries published a collection of 14 essays on Financial Wellness in April 2017. The essays provide a thought-provoking array of views and perspectives. Six of the fourteen essays were awarded prizes, including the ones I will discuss below.
Financial wellness strategies provide a different approach to financial success compared to more traditional retirement planning and risk management methods. The two approaches are not inconsistent, but they differ in certain aspects. Financial wellness takes a broad view of all factors impacting financial success. It includes primary emphasis on debt management and achieving multiple goals in tandem, and balances doing with planning. Traditional benefit planning often focuses more on addressing risks discretely, rather than in a systematic or holistic fashion (although this is not always the case).
The need to bring together thinking about short and long term issues is particularly relevant in today’s economic environment. While fixed dollar investments have very low returns, interest charged on credit card debt can be 18% a year, or more. This situation makes coordination of short-term debt management with longer term planning very important.
Essays focused on employer/benefit plan issues
Several examples of topics that focused on helping employers manage programs include:
Rethinking 401(k) plans: The essay, titled "My Financial Wellness Solution: The 401(K) as a Lifetime Financial Instrument" and written by Jack Towarnicky, provides a history of the evolution of 401(k) plans and proposes further changes to their structure and legal governance to enable them to further evolve into lifetime security accounts. This essay reviews the current state, which includes automatic features, plus a design that facilitates asset aggregation and retention and modern loan provisions. The essay then moves into the proposed next generation, which focuses on lifetime financial instruments that are very portable and can address a variety of financial goals. It reduces the emphasis on retirement and focuses on capital accumulation. The essay suggests changes in design such as adding death and disability insurance, allowing additional rollovers and plan-to-plan transfers, allowing one loan of each of several types, etc. The essay is a great document to start a discussion about whether the existing plans meet the realistic needs of employees today and how they should evolve.
Measuring investment return from employee wellness programs: Greg Ward, in the essay "Calculating ROI:Measuring the Benefits of Workplace Financial Wellness," focuses on the loss of productivity from financial anxiety and provides a means of calculating a return on investment for financial wellness programs. The return on investment calculation example includes an allowance for reduced garnishment, payroll taxes saved due to FSA/HSA contributions, reduced absenteeism and turnover, health care cost savings, and reductions in delayed retirements. The essay provides a discussion of a variety of different benefits that the employer derives from offering a financial wellness program.
Making workplace programs successful: This essay, "What Makes a Workplace Financial Wellness Program Successful?" by Julie Stitch, reports on a 2016 International Foundation of Employee Benefits Plans survey of plan sponsors about their programs in financial wellness and education. It identifies a number of factors that contribute to programs’ success.
Using technology effectively: “Financial Well-Being as a Technology Solution,” by Scott Marcotte and John Larson, points out how software can be used to bring average employees the types of analysis and advice that can be secured from financial advisors. The essay focuses on key ingredients of an effective technology solution and provides a vision of good solutions that work for both the short-term and the long-term, and that enable employees to access solutions that are often available only to people with advisors. It proposes that such software needs to include data aggregation to bring together all of an employee’s household data, life planning questionnaires to learn about the household’s needs, and stochastic analysis. Such software should consider the need for emergency funds, preparing for education costs for children, buying a house, dealing with debt, and considering long-term issues such as saving for retirement.
Overall, this collection of essays represents an important advance in the literature for this area. In a future blog I will provide additional insights into wellness issues and highlights from some of the other essays. Several of the essays focus on elements of effective planning and others on some areas that are often overlooked.
|Accessing the Essays: the essays are found in the Financial Wellness Essay Collection on the Society of Actuaries website. They are part of the research page on Aging and Post-Retirement where many additional reports on retirement topics can be found.|
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