Plan Sponsors Turning to Financial Wellness Programs to Improve Retirement Security

The consequences of issues that employees experience if they’re financially underprepared for retirement can spill over to the organization as a whole, and to help minimize these risks, more employers that offer retirement programs are measuring the financial readiness of employees to retire (43%, up 10 points over 2016), according to the 2018 Gallagher Benefits Strategy & Benchmarking Survey.

While midsize and large employers are more likely to evaluate their success in educating and preparing employees for this future milestone, growth has mostly occurred among midsize and small employers (up 5 points over 2017), the survey finds.

In addition, to help employees reduce their debt stress and maximize their retirement plan savings, more employers are developing financial wellbeing initiatives. Adviser sessions are available to employees at 62% of organizations and financial literacy education at 47%. Without the planning skills that resources like these promote, employees are more likely to fall short of meeting their target retirement date or income goals—and to work longer to compensate. The potential for increased costs — such as compensation, health care, workers’ compensation and presenteeism—are the most common, Arthur J. Gallagher & Co. says.

To help reduce employee stress about more immediate financial challenges, some employers offer debt counseling (23%) and student loan forgiveness programs (13%). Large employers tend to have broader resources available to invest in financial wellbeing, so they’re more likely than other employers to offer more of these benefits. Gallagher found that student loan support—still a relatively scarce benefit—is much more common among nonprofits.

Other retirement benefit-related findings of the survey include:

• Those that provided a retirement program or plan option this year increased to 84%, up 6 points over 2017. Large (90%) and upper midsize employers (87%) drove the largest gains while about one in five small employers (21%) don’t yet have a retirement plan.
• Defined contribution (DC) plans continue to be the most frequently offered retirement plan (77%), while traditional defined benefit (DB) plans are used by 35% of employers overall (and 48% of nonprofits). Six percent offer nonqualified plans, and 4% offer cash balance plans.
• Forty-two percent of employers overall use auto-enrollment and 20% use auto-escalation; however this is down from last year (a drop of 6 points for auto-enrollment and 9 points for auto-escalation).
• The median core employer contribution deferral for all employers is 3%, and the median cap or maximum deferral percentage is 10%, with small and lower midsize employers’ cap slightly lower at 8%.
• Nearly three-quarters (74%) of employers match employee retirement plan contributions, up 3 points over 2017. The median maximum match as a percentage of employee salary is 5%.
• One-fifth (20%) of employers provide a non-elective profit-sharing contribution, with large employers only slightly more likely to choose this practice than most other groups. On average, those that do offer this benefit contribute 3% of salary—and nonprofits are an exception at 4%.
• Among employers that offer nonqualified plans, more than 43% provide 457(b) plans—a 12-point increase over 2017. Forty-one percent (up 6 points) offer 409A deferred compensation plans, and 13% (unchanged) offer 457(f) plans.
• Forty-nine percent of organizations have a formal investment policy statement (IPS), and 30% said they don’t know if they do.