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Thursday, December 7, 2023

Financial Wellness Begins with a Great 401(k) Plan

“How will I pay down my debt?” “Will I be able to afford retirement?” “How can I save for my future and put my kid through college?” These are the questions that are keeping your employees up at night. With the pandemic raging—and increasing concerns about health care, job security, and market fluctuations—financial stress is at an all-time high. In fact, the National Endowment for Financial Education® (NEFE), revealed that nearly 9 in 10 Americans say that the pandemic is causing stress on their personal finances.

As an employer or a business owner, you may be wondering what you can do to help. Well, the answer is simpler than you may think. Adding a 401(k) plan—or improving the plan you currently offer—can dramatically improve the financial wellness of your workforce.

Your employees may be more financially stressed than you might think

According to research from Willis Towers Watson, nearly two in five employees live paycheck to paycheck. And it’s not only those at lower income levels who are affected; even highly paid employees struggle financially. Notably, the survey found that:

  • 39% could not come up with $3,000 if an unexpected need arose within the next month
  • 18% making more than $100,000 per year live paycheck to paycheck
  • 70% are saving less for retirement than they think they should
  • 32% have financial problems that negatively affect their lives
  • 64% believe their generation is likely to be much worse off in retirement than that of their parents

As you can imagine, this financial stress seeps into every aspect of your employees’ lives—including their productivity, engagement, and wellbeing at work. In fact, according to Willis Towers Watson, 39% of struggling employees said money concerns keep them from doing their best at work, and 49% reported suffering from stress, anxiety, or depression over the last two years. Financial stress can also trigger higher health care costs, more frequent sick days, and other unanticipated—and financially damaging—side effects.

What will all this financial stress cost your business? Well, Gallup research shows that U.S. businesses are losing a trillion dollars every year due to voluntary turnover. Plus, the cost of re-hiring and re-training is compounded in smaller businesses because the loss of knowledge, subject matter expertise, and skills can be difficult to manage when there isn’t a deep bench of succession.

Financial wellness is within reach—and this is what it looks like

If financial stress can damage the fabric of your organization, financial wellness can help repair that damage. The Consumer Financial Protection Bureau defines financial well-being as:

  • Having control over day-to-day, month-to-month finances
  • Having the capacity to absorb a financial shock
  • Being on track to meet financial goals
  • Having the financial freedom to make choices to enjoy life

In a practical sense, being financially healthy means spending within one’s means, having a plan for the future, and feeling confident that today’s decisions today will have a positive impact on the future. Employers who take steps to increase employee financial wellness—such as implementing a 401(k) plan—often experience benefits like increased retention and reduced absenteeism.

According to an employee survey, 74% of employees say that financial wellness programs are an important workplace benefit and 60% say they’d be more likely to stay at a job if their employer offered financial wellness benefits that help them better manage their finances. The good news is that some 401(k) plans transcend retirement saving to focus on improving overall financial health.

The path to financial wellness starts with a great 401(k) plan

While employees may have investments outside of work, quite often, their employer-sponsored 401(k) plan serves as their primary long-term savings vehicle. That’s because features like convenient payroll deduction and automatic enrollment make it easy for employees to save for their future. And for those lucky enough to work for organizations that provide employer contributions, employees can be quite motivated to participate. However, according to the Bureau of Labor Statistics, only about half of employees participate in a retirement plan at work—illustrating a great opportunity for more employers to offer a plan (or work to increase participation).

However, not all 401(k) plans are created equal. Some do a far better job at improving employee financial wellness than others. When evaluating 401(k) plan providers, consider the following questions:

  1. What types of educational tools and resources are offered and how accessible are they? Many 401(k) providers provide a wealth of educational tools and resources—including webinars and online articles—designed to help employees not just save for retirement but address other financial concerns such as budgeting, debt management, and how to manage taxes.
  2. Is personalized advice available and part of the overall fee? 401(k) education has advanced beyond traditional, staid group enrollment meetings, and technology can be essential in helping employees engage with the plan. This may even include individualized and comprehensive advice that can help employees make more informed decisions.
  3. Does the platform enable employees to see the bigger picture? Does the provider allow employees to sync outside accounts and track financial goals beyond retirement? Platforms that give employees a holistic view of their finances facilitate good saving habits.
  4. How do the fees stack up? Expensive (and sometimes hidden) fees can take a bite out of savings—and disrupt employees’ financial future. Affordable and transparent fees are critical to helping employees keep more of their savings working for them.
  5. What types of investments are offered and will they appeal to your employees? Plan providers often have unique perspectives on investments, so take the time to understand whether they will appeal to employees and how strategies will help employees reach their goals.

Boost plan participation to boost financial wellness

Even if your 401(k) plan offers a more robust approach that can help improve employee financial wellness, the critical first step is to get employees to take advantage of the plan. But that’s sometimes easier said than done. If you’ve struggled with participation rates in the past, consider:

  • Giving away “free money”— Employer contributions (matching, safe harbor, or profit sharing) reward your employees and incentivize them to save for their future through your 401(k) plan.
  • Enhancing communication—Whether you want to send an email, host a meeting, or talk to employees individually, get the word out about the benefits of your 401(k) plan and the full scope of available features. Targeted communication may help employees get started on the road to financial security.
  • Revamping plan features—Consider shortening (or removing) the waiting period so employees can enroll as soon as they’re hired, accelerating the employer contribution vesting schedule, or enhancing the automatic enrollment features by increasing the default contribution rate or expanding the employees impacted.

Reap the rewards of a financially well workforce

Adding a 401(k) plan or improving your existing one can have a dramatic impact on the financial health of your workforce. Benefits include:

  • Lower levels of employee financial stress
  • Happier employees
  • Less employee turnover
  • Improved productivity
  • Potentially lower healthcare costs
  • Better business outcomes

Betterment can help

At Betterment, our mission is simple: to empower people to do what’s best for their money so they can live better. Our easy-to-use 401(k) platform ensures that employees can get personalized advice on their saving goals—in one place. From saving for a new house to planning for retirement, employees get the support they need to achieve their goals. Plus, our innovative technology:

  • Takes into account employee ages, savings, and goals to create a personalized plan to help them save for the future they want
  • Enables employees to link their outside assets, making it easy for them to see the full picture of their personal finances
  • Could result in employees having 38.8% more after-tax money over 30 years by utilizing Betterment’s automated features and following our recommended investment advice

Want to learn more?


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