Employers who help employees improve their overall financial wellness and reduce financial stress can reduce costs in a number of areas that positively impact the company bottom line, as well as improve employees’ retirement prospects, a study from Financial Finesse finds.
The study found that employees who suffer from overwhelming financial stress or struggle to maintain financial stability tend to incur both immediate and future financial costs for their employer in the form of absenteeism, garnishments, payroll taxes, and delayed retirement. As employee financial health improves these costs diminish.
For its 2016 ROI Special Report, Financial Finesse conducted a case study of a Fortune 100 company’s comprehensive workplace financial wellness program from 2009 to 2014. Depending on employer size, employers can save up to $433,007 in garnishments, up to $682,034 in flex spending/health savings, and up to $4,347,275 in absenteeism by improving the workforce’s financial wellness score from 4 to 5 on a 10-point scale. The savings is even greater when improving the workforce’s financial wellness score from 4 to 6.
Financial Finesse notes that higher rates of flexible spending and health savings account contributions occur among participants with higher wellness scores. As employees contribute more into pre-tax flexible spending and health savings accounts, employer FICA-tax expenses are reduced.
In addition, the study found higher financial wellness scores correlate to the ability and choice to make increased retirement saving deferrals. While employees overall were not saving the recommended 10% to 15% of their income for retirement, those with higher financial wellness levels made larger contributions on average.
An analysis of retirement plan contribution rates found that employees that improve their financial wellness score from 4 to 6 could potentially improve their retirement plan balance by more than 27%.NEXT: Addressing different stages of financial health
As part of the study, Financial Finesse separated participants into one of five levels of financial health based on their financial wellness score: suffering, struggling, stabilizing, sustaining, and secure.
Thirteen percent of respondents are “suffering” employees. They averaged 17 hours of absenteeism a year, 10.7% had wage garnishments and 49% reported having taken a retirement plan loan or hardship distribution. They are also the least likely to contribute to their retirement plan (80%), have the lowest average retirement plan deferral rate (5.04%) and contribute the least on average to flexible spending and health savings accounts.
Financial Finesses suggests suffering employees tend to feel overwhelmed by their circumstances and may lack the necessary guidance and motivation to help them out of their situation. For this reason one-on-one guidance and coaching on cash and debt management from financial professionals via phone-based or in-person sessions is the best way to stop the financial bleeding and to start on the road to financial recovery. Additionally, employers should require employees to participate in mandatory financial counseling when wages are garnished, or when employees request a retirement plan loan or hardship withdrawal. Employees that receive financial counseling at the time of requesting a loan or hardship withdrawal are 35% to 50% less likely to request a subsequent loan or hardship withdrawal compared to the average rate of recidivism.
Contributions to flexible spending and health savings accounts were a bit higher for “struggling” employees than those made by suffering employees, and average retirement plan deferral rates increased to 6.18%. Despite having substantially higher cash and debt management financial wellness scores relative to their suffering counterparts, struggling employees exhibit a severe lack of confidence in retirement and investment planning. Only 18% reported feeling confident in their investment strategy, and 5% indicated being on track for retirement.
Best practices for financial wellness programs that target struggling employees suggested by Financial Finesse include:
- Mandatory financial counseling for employees requesting a retirement plan loan or hardship distribution, or who are having wages garnished;
- Employer-paid financial education offered during work hours; and
- Access to financial coaches following workshops/webcasts.
“Stabilizing” employees have cash flow and debt under control, but they generally lack progress toward longer term financial goals like paying for college and retirement. Financial Finesse suggests employers should offer financial education that incorporates company benefits about these topics. Since stabilizing employees may not be able to take time off to participate in these educational sessions, employers should offer them during lunch periods, online, or via one-on-one coaching either on the telephone or in person. Benefits planning should be offered prior to open enrollment to improve benefits participation, and general financial planning should be offered throughout the year to assure budget, credit and risk issues are being addressed.
As employees become more financially healthy, it will be important for them to develop wealth protection strategies that preserve assets and manage risks, Financial Finesse says. This can be done through advanced financial planning and education that addresses wealth-protection strategies through insurance, tax, and estate planning. This can raise awareness of voluntary benefits such as prepaid legal and portable insurance and help position the plan sponsor as an employer of choice.
Best practices for reaching “sustaining” employees include:
- Promoting advanced financial planning in program communications;
- Creating peer-to-peer learning opportunities through group learning sessions; and
- Offering access to unbiased financial professionals for investment portfolio reviews.
Finally, best practices for assisting “secure” employees Financial Finesse suggests include:
- Offering access to highly credentialed, experienced financial coaches, such as CFP professionals and CPAs; and
- Promoting secure employees as financial wellness program champions that can serve as internal ambassadors and/or lead peer-to-peer learning groups.