According to a recent study by TIAA, less than half of US
workers have enough savings to cover six months of expenses, and about 60% say
they are stressed about their finances. Further, more than half of respondents
in the TIAA study believe companies have a responsibility to help employees
maintain financial wellness as they continue to face financial hardships in the
wake of the pandemic. Another recent study by Franklin Templeton revealed that
three out of four workers want their workplace to provide more resources to
help them with not only retirement savings but their overall financial
well-being.
Against a volatile market environment, the decline in the
availability of Defined Benefit Plans, less inflation-adjusted Social Security
purchasing power, longer lifespans and these increased expectations from
employees, the pressure is being felt from all angles. Employers need to
provide more support and solutions, and government plays a critical part in
setting parameters to help provide safe and secure retirement opportunities.
Legislation moves to the forefront to overcome industry
challenges
As plan sponsors seek solutions for guaranteed income in
Defined Contribution (DC) plans to improve retirement outcomes, Congress and
regulators have been listening. 2019’s SECURE Act 1.0 reduced the fiduciary
risk associated with the use of lifetime income products, annuities, in a DC
plan through stronger Safe Harbor provisions.
While SECURE 1.0 laid the groundwork for improved access to
lifetime income, adoption lags demand. Few 401k plans have access to in-plan
annuities, yet research shows the majority of plan sponsors agree there’s a
need for these options. It’s believed uptake would be aided by advisor and plan
sponsor education, comparative data and due diligence tools to facilitate
selection and monitoring of retirement income offerings. A new Retirement Income
Consortium was launched in early 2022 to help address those challenges.
Separately, many product and platform providers have launched new offerings
aimed at addressing some of the biggest objections targeted at these offerings
(including portability). The financial services industry has a role, and
opportunity, in addressing execution needs beyond the reach of regulators.
As many pundits predict the passage of SECURE 2.0 this year,
the success of that Act will be dependent on industry engagement as well. For
example, SECURE 2.0 is expected to make many more small businesses require
retirement savings plans; finding an efficient means of connecting payroll
systems to recordkeeping platforms will be a meaningful challenge to address.
Opportunity for employers to meet financial wellness
needs
In addition to retirement plan concerns, employees are
increasingly looking to their employers to provide holistic financial planning
tools that better assist with financial wellness outcomes.
To meet these needs, many companies will have to change the
way they think about key parts of their employee benefit plans. Most corporate
benefit packages focus on helping workers accumulate assets through
employer-sponsored retirement plans. Although improving outcomes for DC plan
participants remains a critical priority, it’s becoming apparent that many
employees want companies to take a more holistic approach.
By adopting a financial wellness orientation, companies help
employees manage day-to-day personal financial issues, from maintaining a
budget and building up savings to paying off student loans and covering
emergency expenses. The most effective wellness programs seek to improve
long-term outcomes by offering pragmatic products and solutions, and by helping
employees understand the benefit options they have, both outside and inside the
retirement plan. That means providing better educational materials and
sessions, and more targeted advice, delivered through both in-person and
digital channels.
Using next-gen technology to deliver new solutions
For employers, rolling out financial wellness programs
requires investments of both resources and time. Fortunately, companies have a
host of partners ready to assist. Recordkeepers, advisors and growing numbers
of fintech providers are using technology to deliver new solutions that help
employers build out and scale a financial wellness program. For example, some
fintechs are using powerful data analytics that help advisors and plan sponsors
analyze workforces and segment employees into groups based on financial needs.
Education, digital advice, or human advisor engagement can then be directed
based on those identified needs. Increasingly, we’re seeing advisors lead the
charge with implementation of Financial Wellness programs; expanding their
wealth management reach with technology as they provide a meaningful service to
employers.
By helping employees address personal finance challenges and
make better decisions over the course of their careers, employers are
positioning workers to improve their retirement readiness and reduce stress,
leading to more focused and effective employees.
Retirement income availability and financial wellness
programs are not panaceas, but they can go a long way towards providing better
financial outcomes for employees. Adopting a financial wellness perspective is
not merely an altruistic strategy for employers. At a time of historically
tight labor markets, companies that help employees maintain a state of
financial wellness are likely to benefit from increased rates of hiring,
retention, job satisfaction and productivity. Those advisors, and service
providers, that help solve these challenges stand to gain as well.
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