Engaging Participants

Financial Wellness

Financial Wellness
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The hallmark of a successful DC plan includes a well-defined plan and actionable strategy to (1) inform all employees about the plan benefits and encourage participation, and then once they are in the plan, (2) provide participants with the tools and services to help them save as much as possible toward retirement. When thinking about building new plans — or course-correcting existing plans — it’s important to understand what is currently working for plan sponsors in participant education and what’s on the horizon. If a participant is struggling to manage their debt, they are highly unlikely to contribute what is needed to reach their targeted retirement outcome. To that end, there is a growing trend toward specifically helping in-plan participants consider and address all aspects of their financial health — termed financial wellness — to help them manage their overall finances to, and through, retirement.

According to Aon Hewitt’s 2017 Hot Topics in Retirement study, 84% of nearly 250 U.S. employers representing approximately nine million employees intend to focus on the overall financial well-being of their employees, beyond retirement readiness. Half of all companies surveyed believe the significance of financial wellness concepts has increased over the last two years, with physical health and financial health increasingly linked. As part of the plan sponsors’ fiduciary duty to “give the beneficiaries of the plan the best chance for success,”1 an evolved in-plan education strategy focused on financial wellness, leveraging new tools in communications plans, can help. With seven Americans reaching age 65 every minute, continuing for the next several years,2 it’s critical that participants have the strategies and tools they need to succeed within the DC plan.

Moving toward a holistic financial wellness approach

Most DC plan communication efforts currently include enrollment kits outlining the details of the plan, group enrollment meetings, online plan information, call centers and messaging on quarterly statements — focused primarily on the investments to select, the value of tax deferral and the benefits of contributing to the plan over time. This, with increased use of auto-enrollment and auto-escalation programs, has participation rates at an all-time high, but savings rates are not keeping up.3

According to EBRI’s Retirement Confidence Survey, 40% of workers cited cost of living and day-to-day expenses as the top reasons why they do not save (or save more) for retirement, and 56% of workers and 33% of retirees report having a problem with their level of debt.4 Many know they should be saving (more) for their retirement, but feel they can’t with their current financial situation.

In light of this, leading plans are turning their focus to giving participants a deeper understanding of financial planning concepts. These in-plan education efforts include holistic financial wellness topics such as budgeting, debt management, savings for life stages, understanding the impact of inflation, basics of financial markets, financial planning, and health planning.5

Furthermore, with ever-increasing life expectancies, a growing gap between participant expectations of future costs and the reality of inflation’s impact on affordability, and an increasing number of near- retirees postponing retirement due to savings shortfalls, education about living in the decumulation phase is also getting attention. For near-retirees, this includes education on retirement income solutions, the timing of claiming Social Security benefits, and the order of spending from 401(k) plans, Traditional IRAs, Roth IRAs, and other retirement savings.

The rise of savings and investing “help.”

Products, services and tools that provide savings and investing assistance to parti-cipants continue to gain favor among plan sponsors. By the end of 2017, features such as online guidance, managed accounts, and phone access to financial planners or investment advisors are expected to be the norm, not the exception.5

When Aon Hewitt and Financial Engines looked at the impact of professional “help” on participant plan portfolios — defined as the access/use of target date funds, managed accounts and online advice in DC Plans — they found that over a six-year period (2006-2012):7

  • Participants using “help” earned higher median annual returns than those who did not, across all age ranges and a wide range of market conditions.
  • The annual performance gap between “helped” and “non-helped” participants’ median returns was 3.32%, net of fees. For a 45-year-old “helped” participant, this could translate to 79% more wealth at age 65.

Clearly, offering “help” can make a difference.

Last, educating participants on risk is key. Understanding risk — and their personal comfort level with it — can help them determine the right level of risk for their current age and expected retirement age, and help weather sudden market volatility over time in a way that matches their tolerance level.

According to Aon Hewitt’s survey results, the most common feature currently offered is education on simple investing and the basics of financial markets. Many plan sponsors indicated they are likely to expand the services they offer within their DC plan in 2017. Will you?

Action steps to take now.

Review the plan’s current participant education and communications plan success, perhaps as part of the annual benchmarking effort. If savings levels per participant are low, retirement plan advisors and recordkeepers can work together to identify cost-efficient yet impactful ways to add financial wellness programs to the plan. Ideas include:

  • Test a broader holistic approach by introducing financial wellness topics to the plan, such as budgeting or debt management, creating an income stream in retirement, or free access/referrals for 1:1 meetings with professionals who act as fiduciaries.
  • Access financial wellness programs through retirement plan advisors and recordkeepers. Additionally, there are third-party providers who can provide holistic in-plan retirement education to help participants get out of debt, on a budget, and on their way to saving for retirement.
  • Re-evaluate the current communications strategies. Are the vehicles in use (e.g. collateral, simple website, emails) the best choice for the way participants, young and old, like to learn? Consider segmented strategies based on age and comfort level with technology. If not already offered, consider adding webinars, mobile websites.

Last, establish and track metrics regarding overall plan participation rates and savings rates against the plan’s definition of success.

Learn More
To discover more about retirement best practices and BNY Mellon Retirement, visit us at im.bnymellon.com/dc or call 1-800-992-5560 to speak with a Dedicated Retirement Consultant.

This article is from the Planet DC Summer 2015 edition. Updated in November 2016.

1Fiduciary News, 2015.

2US Population Projections: 2005-2050,J. Passel and D. Cohn (2008).

3Employee Benefit Adviser, Participation rates at all-time high, savings rates not keeping up, Joel Kranc, July 3, 2013.

4Employee Benefit Research Institute, Retirement Confidence Survey 2016.

52017 Hot Topics in Retirement Study, Aon Hewitt.

6Employee Benefit Adviser, Employee ignorance is not bliss on retiree health costs, Richard Stolz, March 13, 2015.

7Aon Hewitt/Financial Engines, Help in Defined Contribution Plans: 2006 through 2012, May 2014.

8Fidelity, Retiree Health Care Cost Estimate, 2016.

This information is general in nature and not intended to constitute tax or estate planning advice. Please consult your tax or estate planning advisor for more detailed information on these issues and advice on your specific situation. This material is for general investment and reference purposes only and is not intended to provide or be construed as legal, tax, accounting, investment, financial or other professional advice on any matter, and is not to be used as such.

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