Magazine

DC Plan Q&A | Published in May 2017

Wellness Programs

Untangling the various options

By Lisa H. Barton | May 2017
Art by Jocelyn Tsaih

Health and wellness programs, which help employees with challenges such as weight management and smoking cessation, are common benefits offered by employers. This concept of wellness has been increasingly applied to finances as well, as many companies have begun offering financial wellness programs to help employees deal with broad issues of saving, spending and debt management. The appeal of these programs is to lessen financial stress, because financially insecure employees can lead to workplace productivity and health issues.
 
However, as financial wellness be­comes a buzz-term, there is a lack of consensus on what such a program entails. To some employers, it means providing services to their workers so they can improve their financial situation. To others, it means helping employees adequately save for retirement. This article discusses some of the issues and considerations facing employers as they evaluate offering financial wellness programs as part of their overall benefits package.
 
Q: Why is financial wellness important?

A: Employers have realized the benefits of providing health and wellness programs to their employees. In fact, more than two-thirds of U.S. employers that offer a health program also offer some kind of wellness program, according to a 2015 Forbes.com article. Some employers have even started to offer on-site medical care, complimentary fitness centers, etc., in order to boost health and wellness.
 
A growing trend, of interest to many employers, is the adoption of financial wellness programs. Employers are concerned that employees are not financially secure and, as a result, spend time and resources worrying about money when they could be working. According to a 2017 PWC Employee Financial Wellness Survey, which incorporates views of nearly 1,600 individuals, nearly one-third of employees have indicated that they are distracted from their work due to personal financial issues. Of those, nearly half have spent three hours or more at work each week thinking about or dealing with such issues. The distractions can relate to paying bills, paying student loans, saving for college and retirement, or handling periodic financial demands such as the need to buy a car.
 
Financially stressed employees are more likely to miss work due to health issues caused by stress. Financial wellness is important because engaged employees who can minimize their financial stresses will be more productive. Additionally, employees who are financially secure are more likely to save adequately for retirement and are more likely to be “retirement ready.”
 
Q: What types of financial wellness programs are being offered by employers?

A: Employers are providing educational resources, seminars, communications and other tools to help employees evaluate and handle their individual financial situations. There are several vendors that provide programs of different levels relating to financial wellness. Depending on the demographic group, different types of financial wellness programs may be more valuable. For example, Millennials may be more interested in tuition consolidation or payment programs, whereas other workers may want to evaluate ways to save for their children’s college or retirement. Employers should evaluate their own employee needs when considering financial wellness programs to ensure that the maximum benefit for these programs is received.
 
Q: How does financial wellness affect retirement plan savings?
A: Without a doubt, employees who are financially unstable are less likely to save for retirement. Additionally, financial issues can cause employees to take premature withdrawals from their retirement plan. These withdrawals can have a significantly negative impact on retirement readiness.
 
According to the 2017 PWC Employee Financial Wellness Survey, 51% of Millennials and 57% of Generation X employees have withdrawn funds for unexpected expenses. Further, 22% of Millennials and 18% of Gen X employees have withdrawn retirement funds for medical bills. While many of these withdrawals are likely in the form of loans, even if the money is paid back over time, the employees will be losing the benefit of having the loans invested during the time the loan is being repaid. Encouraging and assisting with financial wellness will also help employees maintain and increase retirement savings.
 
Q: How can employers encourage retirement plan savings?

A: Employers can help employees save for retirement by implementing automatic enrollment and automatic escalation programs as part of their 401(k) programs. A 2015 Vanguard Research study “Auto­matic Enrollment: The Power of Default” indicated that the participation rates of 401(k) plans with auto-enrollment features were 92% versus 42% in plans with voluntary enrollment, over the study’s years—2010 through 2012. Additionally, of employees who were automatically enrolled, only 10% opted out of auto-enrollment.
 
Thus, while financial wellness tools can be important for employees to help establish financial security, plan sponsors should not forget changes that can be made to their existing benefit plans and programs, to that end.
 
Q: What do employers need to consider when thinking about financial wellness?

A: Some financial wellness programs are being provided as an add-on to the employer’s existing 401(k) plan. This means the cost of the financial wellness program is being paid from plan assets. Any fees that are paid by participants are held to a fiduciary standard and must be reasonable. Before paying expenses from a retirement plan, employers should evaluate whether paying for such a service is a permissible and appropriate plan expense. (See DOL Advisory Opinion 01-01A, and Field Assistance Bulletin 2007-1.)
 
The employer should evaluate many things, including whether the benefit being provided complies with the “exclusive benefit rule” under the Employee Retirement Income Security Act (ERISA). Under the rule, a fiduciary must discharge his duties solely in the interest of participants and beneficiaries. Specifically, an employer should be comfortable that the expense may be paid by the plan and that the service benefits the plan and its participants.
 
Part of the evaluation should include reviewing which employees receive assistance from the financial wellness program and whether those employees are participating in the 401(k) plan or whether there is some other benefit to the plan. Additionally, if an employer determines that the payment is indeed a permissible plan expense, the cost of the program should be evaluated. Any fees paid by the plan must also be communicated to participants in the participant fee disclosure.
 
Furthermore, fiduciaries should take care to document their decisions and the rationale for their decisions.
 
Employee financial wellness is becoming more and more important. However, in addition to determining whether financial wellness programs make sense for an organization, plan sponsors should evaluate how these programs interact with their existing benefits, including their 401(k) plan.
 
NOTE: This feature is to provide general information only, does not constitute legal counsel, and cannot be used or substituted for legal or tax advice.

Lisa Barton serves as the managing partner of the Morgan Lewis Boston office and is leader of its employee benefits and executive compensation practice. Her work encompasses all aspects of employee benefits and executive compensation arrangements, including the design, drafting and operation of tax-qualified retirement plans, health and welfare plans, nonqualified deferred compensation plans and equity compensation plans. She advises clients with respect to compliance with the Internal Revenue Code, Employee Retirement Income Security Act, COBRA and other federal and state laws affecting employee benefit plans, and often represents clients before the federal agencies responsible for regulation of these programs—e.g., the Internal Revenue Service, Department of Labor and Pension Benefit Guaranty Corporation. If you have any questions about your defined contribution plan that you would like Lisa to answer, please send them to judy.hartnett@strategic-i.com.

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