Financial wellness is still a somewhat fuzzy term, often defined by vendors around their particular product or service offering. Neil Lloyd, head of U.S. Defined Contribution & Financial Wellness Research with Mercer, notes that it’s often a “coverall term,” and when you drill down, for some companies “financial wellness is just their retirement plan.”
Regardless of how they’re defining financial wellness, though, it remains an important topic for employers. According to the Hot Topics in Retirement and Financial Wellbeing report from Alight Solutions, in 2019, 65% of surveyed employers were very likely and 29% were moderately likely to “create or focus on financial wellbeing (beyond retirement decisions).”
Lloyd reports that Mercer is seeing clients express interest in very specific programs or services. Helping employees deal with student loans is a common focus. Another topic that’s coming up more frequently is income smoothing, he says. Cash flow crunches occur frequently for many workers, and even workers with steady jobs are at risk for running out of funds before the next check arrives—the prevalence of payday loans attests to that problem.
Employers recognize this problem and income-smoothing programs are designed to help employees avoid payday loans. Here’s the concept: Although employers earn their wages continually throughout the pay period, paychecks often are issued biweekly or monthly, so earned income and payrolls are often out of synch. Lloyd cites the example of an employee who needs funds after having completed 10 days’ work under a biweekly payroll arrangement. The employer knows it will get the money back because the employee has already earned it, so any funds given to the employee before the paycheck is issued are an advance, not a loan. “It’s a fee-paid resource and you can debate whether that fee is fair or not, [but] I think it’s certainly a lot more-cost effective than a payday loan,” Lloyd said. “And for a lot of people it’s quite important to bridge finances.”
These programs are examples of what Krystal Barker Buissereth, head of Financial Wellness for Morgan Stanley, calls segmented needs, the idea being that employers can classify employees’ financial needs as short term or long term. Typical short-term challenges and goals include budgeting, managing debt, including student debt and building an emergency savings account. Retirement planning is an example of a long-term goal. The recent data on these short-term needs is “pretty staggering,” Barker Buissereth notes. She cites Morgan Stanley’s research finding that slightly over 40% of employees don’t have enough savings to cover three months’ living expenses.
Employers’ growing recognition of these short-term needs led Morgan Stanley to partner recently with My Secure Advantage as part of its Financial Wellness offering in the Morgan Stanley at Work program. The service gives employees and their families at participating companies access to financial coaching through a phone-based service offered by My Secure Advantage that provides information on budgeting, debt management and credit issues.
Managing student loan debt is another short-term challenge that can cause employees significant stress. To address it, Morgan Stanley recently added a student loan refinancing service to the Financial Wellness platform. According to the company’s press release, the program provides “access to an independent marketplace for student loan refinancing from Credible to better manage educational loans; as well as educational material and call center support.”
The combination of online information and phone support is an example of a holistic solution, says Barker-Buissereth. She explains that employees like to engage in myriad ways that can include digital interactions, working with another person or a combination of the two. Employers should accommodate these preferences, she maintains: “The advice I give to corporate sponsors when creating this workplace solution is to determine and to look at a way to be multichannel, to be able to provide education experience as well as a coaching experience that could be both digital for those who want to engage that way but also provide some form of human interaction.”
Targeting Financial Wellness Programs
You’ve probably had plan-sponsor clients ask you about some aspect of financial wellness, perhaps based on an article they’ve read or after they’ve been approached by a product vendor. Those conversations can lead to good outcomes, but they are reactive, not proactive, Lloyd points out. A better approach is for an employer to first understand the demographics of its workforce and then start to consider which financial wellness benefits could benefit employees.
Most employers already have the resources to start this process. They know employees’ ages, salaries and living locations, for instance. They also know which employees are utilizing current benefit offerings. Those data points can indicate whether a financial wellness offering will benefit most, some or just a few employees, says Lloyd: “First understand your people, then understand what you as a business are trying to achieve and see if we can marry the two and then see which of the products or solutions make sense to you.”