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Student debt impedes participation in retirement savings plans
Driven in large part by the influx of younger workers—think the Millennials, but also their younger cousins in Generation Z—employers are evolving their voluntary benefits to reflect the post-recession economic realities that their workers face.
The idea of “financial wellness” is gaining momentum, with companies offering more educational programs and tools designed to help employees manage the money pressures that come from juggling everything from student debt to mortgages, and from elder care to college tuition, to say nothing of trying to contribute to retirement plans along the way.
The challenge is made all the more difficult by the fact that four generations are at work today, each with priorities that are largely distinct. “Millennials get a lot of attention because of their size relative to the workforce,” said Betsy Dill, a senior partner and global retirement strategist at Mercer. “But really employers are seeing multiple generations, with multiple dynamics based on things like level of debt and life events.”
New, more proactive programs are in the “infancy of implementation,” said Kent Allison, partner and national leader of PricewaterhouseCooper’s (PwC’s) Employee Financial Education and Wellness practice. However, he added, “more employers are seeing the need” to help workers manage their finances, not only through education but by helping them to change behaviors.
Not only have organizations begun to recognize that employees haven’t been saving enough for retirement, he said, they’re taking steps to address the reasons those savings weren’t put aside in the first place. “Income’s been stagnant and people have debt,” Allison observed. “Now, companies are focused on dealing with what their employees are dealing with.”
“Employers offer health incentives, now they’re offering financial-health benefits and incentives,” said Kelley Long, a resident financial planner with Financial Finesse, a company that provides independent financial education services as a workplace benefit. “They’re recognizing that a big component of overall wellness is financial wellness.”
Financial wellness has a tangible impact on business, noted Dill. People who are stressed about money are prone to absence and spend more work time dealing with personal financial issues, she said. That, in turn, leads to a lag in productivity.
Numbers bear her out. According to the
2015 Employee Financial Wellness Survey from PwC, 20 percent of employees say their financial issues have been a distraction to them while at work, where each week 37 percent spend three or more hours thinking about or dealing with their personal finances.
All of this adds up to a new dynamic, said Allison. In the past, HR focused its attention on retirement and investment. Now, it has to look at helping employees better manage their finances for here-and-now concerns, as well.
-----------------------------------------------------------------HR is helping employees better manage their finances for here-and-now-concerns.-----------------------------------------------------------------
That means benefits plans must take into account the needs of employees who are in different stages of life. Baby Boomers, for example, are preoccupied with retirement while Generation X is typically juggling conflicting priorities, such as paying off a mortgage, raising children and caring for aging parents. Millennials, meanwhile, are trying to manage their cash flow so they don’t outspend their incomes.
In addition to offering tools and educational programs through firms like Financial Finesse and HelloWallet, some companies are looking for ways to help employees more directly address their money issues.
For example, San Francisco-based SoFi, a provider of student loan consolidation and refinancing services, works with employers to provide student loan refinancing as a voluntary employee benefit. Though co-founder Dan Macklin, the firm’s vice president of business development, declined to name participating employers, he said they’re often big companies, are based around the country, and include a number of technology and consulting firms. (According to 2015 research by the Society for Human Resource Management, less than 5 percent of employers offer company-provided student loan repayment benefits.)
But that number is sure to increase. For instance, starting in July 2016,
associates at PwC will become eligible to receive as much as $1,200 a year for up to six years toward their student loans. The benefit will be paid directly to the loan servicer of certified student loans, although it will still count as income for employees.
A common denominator among organizations that do offer loan-repayment services, Macklin said, is that they employ a large number of workers with college and graduate school degrees, many of them in the early stages of their careers. SoFi says it can drop the average rate of a participant’s student loan from the 7- to 8-percent range to around 4.5 percent or less. Because the lending relationship is between SoFi and the individual, participants don’t have to scramble to repay the loan if they leave their employer.
Macklin believes such benefits are attractive to younger workers, who take their early jobs being less concerned about retirement and health benefits than they are with their student debt burden. In 2014, the average bachelor’s degree recipient owed about $33,000 in student loans,
The Wall Street Journal reported. That level of obligation, Macklin maintained, “impacts the jobs people take, causes stress in the workforce, and also impacts the ability of people to pay into a 401(k) or other benefits.”
Indeed, of the 21 percent of employees who are not currently saving for retirement, according to PwC, 63 percent say it’s because they have too many other expenses, and 46 percent point to existing debts they have to pay off.
Wanted: Student Loan Matching Contributions
In July 2015, iontuition, a provider of student loan services,
conducted a survey of 1,000 workers with student loans to find what they want from their employers. The answer was clear—student loan borrowers want help with their debt:
• Nearly 80 percent of the individuals surveyed with student loan debt said they would like to work for a company that offers repayment assistance, such as by matching employee contributions on student loans.
• 49 percent of student loan holders said they would prefer student loan payment contributions over a 401(k) plan at this point in time.
While the earlier employees start saving for retirement, the more likely they are to have a sufficient nest egg when they stop working, the responses of the surveyed loan holders also make sense. Investment guru Dave Ramsey has
advised young workers to pay off debt before they save for retirement.
In trying to make their benefits packages more dynamic, companies face an additional challenge: Communicating not only about what programs are available, but about which offerings fit an individual’s needs. Organizations are “trying to customize to be relevant,” said Allison, even while they work to avoid overwhelming people with their options. One approach is to combine information the company already has with data provided by employees themselves, then tailor a plan to each individual.
Dill, too, sees more companies looking to engage workers with the right benefits at the right time. “We’re driving toward a more personalized experience,” she said. “In every other aspect of people’s lives, they get a customized experience. There’s a realization now among a number of different providers that the old ways of doing things won’t carry the day,” especially when dealing with a multigenerational workforce.
Younger workers seem to be responding. Millennials, said Financial Finesse’s Long, use her company’s services at a much greater rate than do workers who are nearing retirement. Younger workers are also leading the way in the adoption of automated advice tools, according to Allison. That’s not surprising, given this demographic’s close relationship with smartphones and digital services.
Whatever their approach, more employers are strengthening the financial wellness aspect of their benefits mix. “There’s an uptick in organizations that are taking things a step further,” said Dill. “Organizations are saying that the passive approach is not working and they want to know how they can do better.”
Mark Feffer is a Pennsylvania-based writer who focuses on careers and technology.
Related SHRM Articles:
Easing the Student Loan Debt Burden? Points to Consider,
SHRM Online Benefits, January 2016
In Focus: Student Loan Assistance,
SHRM Online Benefits, September 2015
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