Finance

By Mark Olsen, Managing Director at PlanPILOT

Financial wellness for employees hasn’t traditionally been a concern for employers in the past, but more employees today cite “finances” as a major stress point, potentially leading to lower productivity, lack of focus on their job, and lower motivation. With high housing costs, a potentially slowing economy, the prospect of losing jobs to automation, and continual high living costs in some areas, employers would be wise to address this issue in their company benefits program.

PlanPILOT discussed this in our February blog article. We pointed out greater demand by employees for such features and how employers should utilize services, such as those we provide to make financial wellness a priority within benefit programs. In fact, a recent survey revealed that over 60% of Gen-Z and Millennial workers believe it’s their employer’s responsibility to help employees maintain and improve their financial wellness. 

What Is Financial Wellness?

In simple terms, for most employees, financial wellness generally meets the following common criteria:

1. Having an understanding and control over day-day and month-month finances
2. Being able to absorb a financial emergency expense without increasing credit card debt
3. Having a sense of future financial goals and how these could be met
4. Lifestyle expenses not exceeding after-tax income
5. Keeping debt under control and implementing regular contributions to savings 

While none of the above should be all that surprising, the crux of the problem centers around the idea that while there is certainly ample online information available to employees to help them tackle their financial problems, having the understanding and tools to implement solutions to these issues is lacking. For example, the survey mentioned above also reveals that less than 25% of respondents had a budget in place, less than 28% worked with an advisor, and less than 16% had a written plan with an advisor. It’s clear that consumers need more assistance with their finances, and employers are in a good position to provide help via well-designed employee benefit plans.

Keys to Implementing Financial Wellness Programs

Financial stress can be detrimental to overall employee morale, focus, and job security. If an employee spends part of their workday thinking about money problems, their productivity suffers, they may be unmotivated, and this negative attitude can spread through the workforce. Employees who feel unsupported by their employer may be more likely to leave too.

To provide this type of support (in higher demand today), plan sponsors should consider the following:

• Think about the needs of all employees: Your workforce may be diverse in age differences and financial needs (student loans versus saving for a house versus nearing retirement). Confirm your program addresses these differences.
• Use the resources at your disposal: Include input from HR professionals, benefits consultants, plan recordkeepers, your tax professionals, and others.
• Don’t feel your plan has to “do it all”: Utilize available online resources or subscription programs to fill in gaps which your company cannot cover.
• Implement communication and training programs: Employees may be reluctant to use financial wellness features if they don’t know about them or are unsure how to use what is provided. Include frequent notifications, workshops, and training programs to encourage participation.
• Watch the numbers: Financial wellness programs shouldn’t be “provide and forget” initiatives. Include periodic monitoring, surveys, and reviews by management to verify these programs are meeting and improving participation metrics and employee satisfaction.

Include Impactful Features Based on Current Real-Time Issues

Your financial wellness program stands a greater chance of attracting participation and achieving your goals of higher employee morale and productivity if the program addresses the acute financial issues many are facing today. Here are several we at PlanPILOT recommend:

1. General financial literacy: Learn how to set and stick to a budget, pay down credit card balances, finance a home purchase. Concepts such as compounding interest, basic investment methods, how interest rates affect your finances, etc., are all worthwhile topics.
2. Retirement planning: Why contributing to a retirement plan matters, maximizing the employer match, what may be needed to sustain a retirement, and the basics of Social Security and Medicare are all discussed in the media today. Include topics of automatic enrollment, default investment options, and contribution maximums.
3. Debt counseling: American household debt is at record highs. Include programs that include debt counseling and opportunities to meet with professional debt counselors to help affected workers manage and get out of debilitating debt situations.
4. Student loan assistance: Student loan debt continues to plague college graduates, despite federal assistance and forgiveness programs (which appear to be disappearing with the current Administration). Providing counseling and resources to help with consolidation and servicing that could help employees manage their considerable student loan debt burden could be a welcome and popular benefit.
5. Incentivize financial wellness: Rewarding employees for taking advantage of these initiatives (attending workshops, meeting with counselors or vendors) could encourage participation. Incentives could be as simple as providing lunch or earning PTO credits.

Overall, considering and addressing financial wellness in your benefit program demonstrates your awareness of today’s family financial challenges and a commitment to helping your employees meet these challenges. With a proactive approach and working with skilled and experienced professionals in design and implementation, you can have the type of benefit program that attracts and retains top talent in your industry.

How Much “Wellness” Does Your Plan Provide?

PlanPILOT is uniquely positioned to help employers customize and design benefit plans that meet your needs and objectives. Our mission is to deliver comprehensive advisory services that help plan sponsors meet and exceed their fiduciary responsibilities by providing the proper risk management solutions and independent advice they need.

Are you ready to upgrade to a new standard for your benefit planning? Reach out to me at (312) 973-4913 or send an email to mark.olsen@PlanPILOT.com to learn more about how we can customize our services and your plan to fit your unique needs.

About Mark

Mark Olsen is the managing director at PlanPILOT, an independent retirement plan consulting firm headquartered in Chicago. PlanPILOT delivers comprehensive retirement plan advisory services to 401(k), 403(b), and 457 plan sponsors. His specialties include plan governance, investment searches, investment monitoring, and plan oversight. Mark is recognized as a leader in the industry and speaks at national conferences, including those organized by Pensions & Investments, and CUPA-HR.

By Mark Olsen, Managing Director at PlanPILOT

The SECURE 2.0 Act of 2022 was the most comprehensive retirement plan legislation in over 15 years and included both required and optional provisions for individual retirement accounts and employer-sponsored retirement plans. Due to the complexity of the legislation (with approximately 92 new provisions and delayed IRS guidance on specific aspects), plan sponsors have been somewhat slow to upgrade their employee benefit programs to reflect the new regulations.

In our consultations with plan sponsors, one area where we observe many instances of omission is inclusion of the “optional provisions” of the SECURE 2.0 regulations. These include:

1. Disaster relief distribution options and more lenient tax treatment
2. Employer matching contributions based upon student loan payments
3. Designating employer contributions as post-tax Roth contributions
4. Penalty-free distributions for victims of domestic abuse
5. Self-certification for distributions due to hardship withdrawal requests
6. A $1,000 withdrawal option for personal emergencies
7. Pension-lined emergency savings accounts up to $2,500

Observations of Early Adoption by Employers

In the two years since the SECURE 2.0 was signed into law, some of these optional provisions have been readily implemented by plan sponsors. These include the hardship withdrawal self-certification provision, the allowance for domestic abuse withdrawals, and the retirement account force-out provision (for accounts less than $7,000). The withdrawal provisions appear to be administratively simpler to implement and the popularity of the account force-out provision could be a cost-savings move for plan sponsors. Non-profits have been particularly receptive to implementing distribution provisions in the event of natural disasters or terminal illness. Many of these early adoptions suggest that financial wellness solutions continue to be a top priority of plan sponsors.

Understandably, most plan sponsors have been receptive to implementing provisions that only require small adjustments (such as the expanded “catch-up” provisions within DC plans for those of ages 60-63) with little additional administrative or technology upgrade expense.

Other Provisions Are Slow to Gain Traction or Interest

Even though several of these additional features have been welcomed and implemented, others haven’t experienced much enthusiasm from plan sponsors. For employers, this reluctance has been primarily due to: a) a lack of available technology to adopt many of these optional features and, b) uncertainty about how the different provisions should be administered.

As an example, the student loan matching provision (where an employer’s matching contribution is based upon the participant’s payment toward their educational loans instead of their payroll deferral contribution) has garnered little interest from employers, though there has been enthusiastic interest from participants. This is apparently due to employer concern over fraud (due to the self-certification criteria) and the difficulty of accessing loan information from the U.S. Dept of Education. Sponsors also cited administrative hurdles to including other features, such as the emergency savings account provision.

Legal uncertainty and the lack of guidance on the effects or fiduciary risk exposure that accompany inclusion of some provisions seems to be holding back many plan sponsors. These include the saver’s match contribution, the employer-match-to-Roth feature, the emergency savings provision, and the student loan match.

In particular, the employer-match-to-Roth provision had initially generated a great deal of excitement that quickly fizzled as employers expressed doubts and uneasiness around delving into this uncharted territory, especially without legal guidance. Even now, plan sponsors need to be sure their payroll service vendors or record-keeper companies have the administrative tools and capacity to track and designate these different fund classifications. 

More Additions Possible With Greater Guidance

Interestingly, plan sponsors appear open to enhancing their programs for employees, and adding more of the options provided by SECURE 2.0, as long as their concerns were addressed and solutions were provided. As an example, more than half of plan sponsors surveyed expressed interest in providing a “lifetime income” feature (aka annuities) in their retirement plan, but cited fiduciary risk, administrative difficulties, and participant utilization as significant concerns, and wished to wait to see how the marketplace evolves for this type of commitment.

Does Your Benefit Program Measure Up?

PlanPILOT is uniquely positioned to help employers customize and design benefit plans that meet your unique needs and objectives. Our mission is to deliver comprehensive advisory services that help plan sponsors meet and exceed their fiduciary responsibilities by providing the proper risk management solutions and independent advice they need.

If you’re ready to upgrade to a new standard for your benefit planning, reach out to us at (312) 973-4913 or send an email to mark.olsen@PlanPILOT.com to learn more about how we can customize our services and your plan to fit your unique needs.

About Mark

Mark Olsen is the managing director at PlanPILOT, an independent retirement plan consulting firm headquartered in Chicago. PlanPILOT delivers comprehensive retirement plan advisory services to 401(k), 403(b), and 457 plan sponsors. His specialties include plan governance, investment searches, investment monitoring, and plan oversight. Mark is recognized as a leader in the industry and speaks at national conferences, including those organized by Pensions & Investments, and CUPA-HR.

By Mark Olsen, Managing Director at PlanPILOT

The scope and structure of retirement plans evolved significantly in 2024 and this trend will continue unabated into 2025. One aspect receiving considerable attention is the concept that retirement planning is a shared responsibility of the employee and the employer and plan sponsors are increasingly motivated to implement new innovations to retain top talent and assist their employees in planning for their future.

This responsibility on the part of plan sponsors has also given rise to the need for companies to utilize the services of advisor firms, such as PlanPILOT, to provide customized strategies for retirement plan design, implementation, and governance. Here are the leading retirement plan trends we see emerging over the course of this year.

More Emphasis on Participant “Financial Wellness” and Education

The most recent Federal Reserve study on retirement readiness stated that nearly a third of American non-retired workers do not have any retirement savings and of those that do, the average balance is less than $100,000. Further, 35% of those surveyed felt they were worse off than the previous year and another third felt they were off track. 

Plan sponsors have responded with greater demand for educational and financial wellness tools for participants and this trend is expected to continue into 2025. Kevin Crain, Executive Director of the Institutional Retirement Income Council, believes that “a critical priority in 2025” will be to provide education and utilization studies that will help plan sponsors, consultants, and advisors implement such programs. In addition, these enhancements are expected to provide participants with user-friendly and AI-interactive planning tools that can help enhance financial wellness and retirement readiness for employee-participants. 

Greater Focus on Retirement Income Solutions

With the continued decrease in traditional defined-benefit pension programs available to participants that could provide a predictable and reliable source of retirement income, plan sponsors have been looking to evaluate and implement retirement-income solutions within their defined-contribution programs. 

This trend could accelerate as plan sponsors continue to consider product offerings such as hybrid target-date funds, customized annuities, lifetime income products, or systematic withdrawal options for participants. Tools that integrate Social Security income benefit planning and Medicare enrollment guidance are also expected to increase in scope, helping participants optimize their Social Security and Medicare elections. The demand for these types of options will continue to gain momentum in the coming year as demand by plan participants and their employers for personalized planning tools increases. 

Proper implementation will likely require support from consultants and advisors to provide evaluation and selection processes, as well as further studies and surveys to help educate plan sponsors about the benefits of such programs to their employees.

Look for More Enrollment and Contribution-Increase Automation

The success of auto-enrollment features in defined-contribution plans has led to increased participation among employees as well as higher overall plan savings. Expect plan sponsors to build upon these achievements in 2025 with additions of default auto-escalation capabilities within retirement plans, where a participant’s contributions may automatically increase year-over-year. 

Qualified default investment alternative (QDIA) choices will continue to evolve in the coming year. While not expected to broaden into retirement income options just yet, so-called “target-date” funds as the QDIA in retirement plans remain a popular solution for participants who are reluctant to make their own allocation choices and should continue to evolve in their composition.

Expanded “Catch-Up” Contribution Limits and Roth Focus

The SECURE 2.0 Act in 2022 provided significant changes to the retirement world, including increased contribution limits for those nearing retirement age. Beginning in 2025, employees aged 60-63 can make “catch-up” contributions that are 150% larger than normal catch-up provisions. These are in addition to normal contribution limits for qualified defined-contribution retirement plans. 

In addition, all catch-up contributions for those over 50 are required to be designated to Roth after-tax accounts within a participants’ overall account, starting in 2026. Plan sponsors should update their plans to comply with these provisions as well as update their educational programs to help employees understand and take full advantage of these valuable benefit options.

Utilizing Professional Assistance

PlanPILOT is uniquely positioned to help employers customize and design benefit plans that meet your unique needs and objectives. If you’re ready to upgrade to a new standard for your benefit planning, reach out to us at (312) 973-4913 or send an email to mark.olsen@PlanPILOT.com to learn more about how we can customize our services and your plan to fit your unique needs.

About Mark

Mark Olsen is the managing director at PlanPILOT, an independent retirement plan consulting firm headquartered in Chicago. PlanPILOT delivers comprehensive retirement plan advisory services to 401(k), 403(b), and 457 plan sponsors. His specialties include plan governance, investment searches, investment monitoring, and plan oversight. Mark is recognized as a leader in the industry and speaks at national conferences, including those organized by Pensions & Investments, and CUPA-HR.

By Mark Olsen, Managing Director at PlanPILOT

Over the past decade or so, plan sponsors of retirement programs have sought to strengthen the company benefits provided to participants by adding features to both encourage participation and assist their employees with preparing themselves financially for retirement.

One of the more popular additions to programs, such as 401(k) and 403(b) plans, is the inclusion of “retirement readiness” calculators, which allow a plan participant to input data specific to their own financial situation (including retirement plan account balances, payroll deduction contributions, employer match, years to retirement, and expected rates of return) in order to obtain a “financial wellness” score. 

This analysis and “score” is designed to indicate to the participant how well (or not) they are saving and preparing for their future retirement. If there is a deficiency, the participant in theory would be able to determine how much they need to increase their contributions so their risk profile achieves a favorable score, or closer to “retirement readiness.”

Room for Improvement

While even simple analysis and guidance can be helpful to a worker-participant, many retirement-readiness calculators may be inherently flawed or misleading as to the score received and the results implied. For example:

• The scores may be wildly inaccurate if the data only includes the account within the employer plan (a plan-only calculator). Depending upon the provider of the plan, many calculators simply take the balance of the participant account, incorporate the contribution amounts, years to retirement, and an expected return based upon the investment mix selected. Default assumptions may be over-optimistic.
• Participants may have one or several other retirement-based accounts outside the plan that are not included; therefore, the results may show inadequate readiness based upon excluding these outside resources.
• The survey questions may not address or require input on other significant aspects of the participant’s financial life. This includes payoff of a home mortgage, credit card usage and other consumer debt, and significant “spending spikes” that may derail planned contributions at a later date, such as college financing for children, large medical expenses, or unexpected loss of employment. 

Further, many participants may have little sense or understanding about their lifestyle spending levels (even in the present, much less the future), as well as critical input factors, such as inflation or what their Social Security benefits may be or when they are claimed.

• The inputs may only request static data based upon current abilities to contribute to the retirement plan account. For example, a participant in their early years of employment may only earn modest compensation, allowing only for small monthly contributions to their retirement, whereas later in their career (with advancement and higher compensation) greater contributions (and employer match) might be possible.
• There are little to no industry standards that adequately address or quantify what it means to be “retirement ready,” and there can be wide disparity among providers of such calculators. This can vary widely among demographic sectors and areas of the country.

Work-Force Demographics Can Impair Effectiveness

The composition of the workforce can significantly impact whether a program retirement calculator is accurately portraying readiness. Younger participants earning higher compensation in a technology company may score higher in readiness than older workers earning and contributing less in more traditional blue-collar companies. 

In addition, plan sponsor management may have different perceptions of the effectiveness of their plans and employee readiness scores. For example, a low aggregate readiness score for an older, more conservatively invested workforce may dissuade plan sponsors from allocating further resources to the plan. Conversely, a high aggregate score for a newer, younger workforce (who have yet to weather a severe market downturn after selecting aggressive investment holdings with higher potential returns) might indicate “all is well” and the employer fails to understand the nuances behind the favorable data.

Inadequate Readiness May Not Lead to Increased Participation

A fair argument may be made by plan sponsors that imperfect guidance may be better than none at all; at least participants have the ability to understand simple reasoning why saving for retirement is important. Such employers might believe that as long as they have a retirement plan and a readiness calculator, that should be sufficient.

What is not well understood, however, is that even with an insufficient “readiness score,” participants may not have the ability to increase contributions or be reluctant to accept greater investment risk for potential better returns to help boost their score. A Paychex survey of over 800 employers indicated that while over 73% of workers believed they should be saving more for retirement, nearly 80% had no capacity to do so and that nearly a third of workers surveyed are not even concerned about retirement prospects so may not even bother addressing the issue. Interestingly, over 80% of those surveyed believe their retirement benefits were inadequate.

Achieving Accurate Data Requires Robust Tools

The success of a company retirement plan in truly serving and helping participants greatly depends upon providing sufficient tools and robust features within the plan to boost interest in participation and deliver meaningful results. Oftentimes, employers may lack the insight and understanding behind retirement plan programs to be able to craft a plan that truly suits their workforce and resources. Consulting with an experienced specialist in this area may yield customized solutions that result in a happier, more productive workforce.

Utilizing Professional Assistance

PlanPILOT is uniquely positioned to help employers customize and design benefit plans that meet your unique needs and objectives. If you’re ready to upgrade to a new standard for your benefit planning, reach out to us at (312) 973-4913 or send an email to mark.olsen@PlanPILOT.com to learn more about how we can customize our services and your plan to fit your unique needs.

About Mark

Mark Olsen is the managing director at PlanPILOT, an independent retirement plan consulting firm headquartered in Chicago. PlanPILOT delivers comprehensive retirement plan advisory services to 401(k), 403(b), and 457 plan sponsors. His specialties include plan governance, investment searches, investment monitoring, and plan oversight. Mark is recognized as a leader in the industry and speaks at national conferences, including those organized by Pensions & Investments, and CUPA-HR.

By Mark Olsen, Managing Director at PlanPILOT

Behavioral finance is generally defined as the study of the influence of human psychology on decision-making in matters concerning money or finances, including the aggregate effect of a large number of individual decision-makers on financial market movements. It is based upon the theory that decision-makers (humans) are not always rational, cling to their biases or take cognitive shortcuts, and often succumb to emotional behavior or exceed their limits of self-control. 

These behaviors are often detrimental to successfully enrolling eligible employees into a company retirement plan, as well as encouraging participants, once enrolled, to remain in the plan and succeed in accumulating retirement savings for the future. By understanding how behavioral finance tendencies influence employee behavior in this regard and utilizing this understanding in plan design, plan sponsors can encourage higher participation and contributions by employees and assist them in their savings objectives.

Overcoming Human Inertia

The First Law of Motion, stated simply, is that an object at rest stays at rest unless acted upon by an external force. So it is with humans; we tend to stay with our status quo unless something compels us to act. Enrolling in a company retirement plan and deferring income to contributions (instead of spending today) can be intimidating and unpleasant to some participants. 

To counter this tendency, many plan sponsors have added automatic enrollment features into the plan once employees become eligible. As of the SECURE Act 2.0 in 2022, this feature is now required of all newly established qualified retirement plans. Studies have shown that auto-enrollment (even with an opt-out choice) dramatically increases participation rates within defined contribution plans.

Further, the effects of how this feature is presented to participants also matters. Structuring the alternative (to the default enrollment) as an “opt-out” tends to increase participation rates rather than the opposite (opting-in).

Help Participants With Loss Aversion

Loss aversion is a strong emotional behavior. The pain of loss has been shown to be twice the pleasure of potential gain. This tendency may deter employees from proactive decisions that could help them accumulate retirement savings. These include enrolling in the plan at all, choosing smaller payroll deferral contributions, or selecting overly conservative investment choices that could slow the growth of their account over time. Loss aversion also includes panic-selling of equity and other investments during inevitable market declines, often at what turns out to be market lows, which can be costly to a participant’s investment success.

Educational resources and access to investment advisors are two solutions to this issue. Equally important is to include risk tolerance assessment materials, information on market volatility, and interactive retirement account growth models that can help a participant understand the implications of contribution and asset allocation choices. Part of loss aversion is the fear of making a mistake when selecting investments or asset allocation. Providing education or the assistance of an investment professional can help alleviate this issue.

Overconfidence Can Lead to Poor Choices

Participant overconfidence can also be counter-productive to long-term success. There are those participants (due to age or inexperience) who have never directly endured a market correction and the emotional impact such events can cause. It is one thing to casually observe a correction in the news, but quite another to see the value of your own money decrease by as much as 30 percent over a short time period. Similarly, participants may expect more investment return than is realistic or choose investments with the belief that these “will always go up.” 

Just as with loss aversion, overconfidence can be resolved with educational materials, discussion with qualified investment professionals, and the other features mentioned above. Emphasis on historic and realistic investment return assumptions and potential downsides of aggressive investment allocations should be underscored.

The Benefits of Limiting Investment Choices

Retirement plans are often designed with wide varieties of investment options from a multitude of providers that appear to cover the spectrum of investment sectors. While the reasoning may be to provide suitable diversification and choice, the notion of “more is better” has actually been shown to deter participation, not enhance it. 

Even for those who profess to be “experienced investors,” sorting through a large menu of allocations or fund choices may be daunting. For inexperienced participants, too many choices (whether investment-related or even while enrolling in the plan itself) may provoke “decision paralysis” and trigger a psychological “flight” response where the employee declines to even enroll at all. Providing “target-retirement” funds as default investments may help participants who may be uncomfortable with such decisions.

Include Other Features to Improve Participation

Other enhancements to retirement plans can help participants improve their retirement savings success. Along with auto-enrollment, default contribution rates have been effective as a guide to enrollees of how much they might contribute each pay period to their retirement account. Many who are inexperienced with personal finance often ask their plan sponsor or the investment professional how much they should save in the retirement plan. A default contribution amount (which, of course, can be changed by the participant) can be a gentle guide at enrollment. Of course, such defaults ought to consider an available employer match and the advantages of maximizing that benefit.

Similarly, many plan sponsors incorporate a graduating contribution percentage schedule that helps a participant overcome inertia and assists them in achieving a higher savings rate over time. Such schedules might follow historical inflation and wage-increase data toward a target savings rate that might not otherwise be reached without a disciplined structure for the participant to approve and follow.

Utilizing Professional Assistance

PlanPILOT is uniquely positioned to help employers customize and design benefit plans that meet their needs and objectives and those of their participants. If you’re ready to upgrade to a new standard for your benefit planning, reach out to us at (312) 973-4913 or send an email to mark.olsen@PlanPILOT.com to learn more about how we can customize our services and your plan to fit your unique needs.

About Mark

Mark Olsen is the managing director at PlanPILOT, an independent retirement plan consulting firm headquartered in Chicago. PlanPILOT delivers comprehensive retirement plan advisory services to 401(k), 403(b), and 457 plan sponsors. His specialties include plan governance, investment searches, investment monitoring, and plan oversight. Mark is recognized as a leader in the industry and speaks at national conferences, including those organized by Pensions & Investments, and CUPA-HR.