SOUTHFIELD – Lisa Zimmer is a partner in the Southfield office of Warner Norcross + Judd LLP where she concentrates her practice in employee benefits law. She advises employers on the design, implementation and compliance of retirement programs such as 401(k) plans, pension plans and increasingly on employee wellness plans.
In this Q&A, Zimmer provides the details employers need to decide what pension plans to offer employees to keep them happy and within government guidelines.
Lisa, we’re hearing a lot about pension plans these days, both in the public and private sectors, which plans are well funded and which are not. Can you give us an update on the pension environment?
Sure, many public and private entities struggle to maintain and fund their pension programs. Some plans are being inadequately funded, some have had unexpectedly low investment returns, and some suffer from the sheer number of retirees.
Most employers are looking for an exit strategy. As a first step, many private and public employers have closed their plans to new hires. When that did not help with the funded status, private employers completely froze their pension plans. Today, most employers are looking to terminate them – typically by buying an annuity from an insurance company. This not only guarantees that all obligations are met, but also removes the liability from the company’s books.
Ok, but don’t employers still have some responsibility to help employees build wealth and prepare for retirement?
Absolutely! The goal of pension plans was always to help employees be financially secure during retirement.
Over the last several decades, however, employers have shifted from providing traditional pension plans to offering 401(k) plans. Although theoretical calculations show that employees who stay the course with their 401(k) plan contributions can accumulate sufficient account balances, most employees do not stay the course. Some workers don’t participate at all, some don’t contribute enough or make poor investment choices, while others take distributions when they change jobs.
As a result, many Americans are becoming increasingly anxious about their retirement and overall financial wellbeing. A recent study conducted by Harris Poll last December indicated that 87 percent of workers employed full time say they feel at least somewhat stressed about their finances. Multiple surveys indicate that this financial stress and anxiety translates into distracted workers, increased absences and even health issues.
Employers are increasingly taking note of their employees’ money stresses and want to help, but figuring out the right solution can be tricky. Employer-based financial wellness programs can improve the bottom-line for both employees and employers.
What is behind the increased interest in financial wellness programs?
There have been numerous surveys in the news reporting on American workers’ anxiety about their retirement and finances. Given these high levels of self-reported stress, it should not be surprising to learn that many employers say that they want to help their employees achieve financial security.
Companies also have started to recognize that all this worrying about money takes a toll on productivity and health in the workplace. To address this, companies are adding financial well‑being programs to their employee wellness offerings. If companies are concerned about their employees’ wellness, they cannot ignore their employees’ financial health. Financial wellness is a major component of employees’ wellness.
Now is the right time to focus on workers’ financial wellness. Employees are increasingly paying more out of their own pockets for rising health care expenses and they are taking on the risk and responsibility for their own retirement security through 401(k) plans. Not everyone can afford to hire a financial planner for guidance. Employers have an opportunity to step in and offer much-needed guidance.
The bottom line is that financial distractions cost companies money.
What do employer’s mean when they talk about financial wellness programs?
There is no single, agreed-upon definition, but there are some common characteristics.
Financial wellness is a comprehensive approach that supports an employee’s complete financial picture or overall financial health. Financial wellness programs do not take a snapshot approach that focuses on a single aspect of financial planning, such as retirement or college savings. Financial wellness programs look at how all the pieces of an individual’s financial life fit together.
The end goal of a financial wellness program is to enhance the employee’s overall financial well-being. That is why they generally support an employee’s ability to manage both short‑term and long-term needs. The focus is not just on creating a plan, but enabling employees to make decisions to manage a plan over time.
Financial wellness program assessments should include both subjective and objective measures of financial security. Objective measures include homeownership, credit score, debt burden and level of emergency savings. Subjective measures are self-reported stress levels and satisfaction and dissatisfaction with personal financial status.
Financial wellness approaches emphasize the importance of knowing financial concepts and tools and acting on that knowledge to plan, save and invest.
What does a typical financial wellness program look like?
For years, many employers have narrowly focused on saving for retirement. Today’s programs are more holistic: they focus on budgeting, getting out of debt, setting aside money for emergencies, saving for a home and saving for college tuition, in addition to retirement planning.
Combining financial wellness with employee 401(k) education is key. Employers are finding that employees who do not know how to create a budget cannot understand how to manage and invest their 401(k) accounts.
Programs can range from group educational sessions to individualized online programs to personalized coaching sessions with a financial professional. An effective financial wellness program will not be a one-size-fits-all.
Education is a key component, so employees can become well positioned for successful financial planning. This includes things like access to retirement planners, investment advisors and more consistent and comprehensive reporting and analysis – the kind of things that give employees the tools they need to successfully manage their own retirement savings.
Good wellness plans also include enhancements to the employer’s 401(k) plan. It is important to add features that encourage participation and increase savings, such as auto-enrollment, where all new employees automatically participate, and auto-escalation, where the amount of the contribution incrementally increases each year to keep up with inflation and cost of living expenses.
What are some things a company should consider when implementing a financial wellness program
- Get your CEO and upper management involved at the outset: You will get more employee engagement if your top management takes a prominent role and conveys a sincere interest in employees’ financial well-being.
- Gage success through employee surveys:
- You should take a before and after survey. The questions should be the same for both surveys so you can compare the results.
- For privacy reasons, the data collected must be anonymous or hidden completely to the employer.
- Offer in-person financial wellness training:
- In-person communication is critical, especially at the beginning of an electronically based program.
- When rolling out the program, host one or more meetings where employees can learn more about the mobile app or other tech tools.
- When possible, combine high-tech and high-touch:
- Digital tools provide greater access.
- But, high-tech tools may not drive employees to take action as much as a high‑touch approach, such as in-person financial planning or money experts by phone.
- Don’t get hung up on Return on Investment (ROI):
- Proving the ROI of a financial wellness program is tough.
- Focus on value of investment instead, which is more about reducing stress and boosting morale in order to help employees be more valuable to the company.
Are there companies that provide these services to employers?
Yes. A good place to start may be with the recordkeeper for your 401(k) plan.
There are also companies that provide financial wellness programs for employers.
In selecting a financial wellness provider, a best practice would be to complete an RFP process, having all the candidates provide written responses to the same carefully crafted questions along with in-person interviews. I would recommend looking at no less than three companies and thoroughly reviewing their services, contract and costs before picking your financial wellness program provider. After all, you will be giving them access to your employees and their personal financial information. So, it is very important you use a thoughtful and thorough vetting process. This is something your employee benefits counsel can help you with.
To contact Zimmer, click on https://www.wnj.com/Professionals/Attorneys/Lisa-B-Zimmer