Data & Research June 24, 2019

To Succeed, Financial Wellness Programs Need Personal Touch

Financial stress is on the rise in all generations, indicating that financial wellness programs are missing the mark, according to PwC. A new survey report from the firm suggests many employers have simply relabeled existing resources as "financial wellness programs."

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With a solid economy and the jobless rate at a 49-year low, one would expect that financial stress among workers would be on a steady decline. However, according to “PwC’s 8th Annual Employee Financial Wellness Survey,” workers’ financial stress is on the rise due to cash flow and debt challenges, supporting adult children and helping parents. Many workers say they are struggling to keep up with their bills and would not be able to cover an unexpected significant expense.

“As a result, we believe that employee anxiety will continue to mount without a greater emphasis on increasing savings and improving longer-term financial well-being,” the report says. “Stressed employees are nearly three-times as likely to say they expect to spend the majority of their time ‘working in retirement’ because they’ll need to financially. We foresee critical issues for organizations if the root causes of this financial stress are not addressed.”

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PwC says that while 80% of employers report having a financial wellness program, some of these programs are still primarily focused on retirement savings and fail to address the wide variety of financial issues that workers are grappling with every day. As well, they do not offer workers an opportunity to sit down one-on-one with a financial adviser.

“Employees crave the element of human interaction,” PwC says. “Successful financial wellness programs find the optimal way to shape the relationship between technology and human interaction, delivering the motivation employees need to achieve their goals.”

As Kent Allison, a partner with PwC, tells PLANADVISER, the vast majority of employers may believe they offer an effective financial wellness program, but only 24% of workers say their company offers such a program. The reason for this disconnect is because many companies have simply renamed their retirement planning education as financial wellness, and in other cases, employees don’t know that a financial wellness benefit is being offered, Allison says.

Companies need to step back to ensure they are offering holistic financial wellness programs that address the myriad of issues facing employees, including saving for education, paying down debt, insurance, etc., Allison says. Then they have to ensure that they are delivering this information on an engaging digital platform that explains to workers which benefits suit their needs, he says.

PwC’s survey asked 1,686 full-time employees what financial wellness means to them. Thirty-four percent said not being stressed about their finances, 18% said being debt-free, 16% said having money to cover unexpected expenses, 16% said the financial freedom to make choices to enjoy life, and 12% said being able to meet day-to-day expenses—but only 4% said being able to retire when they want to. Clearly, retirement is not top of mind.

By generation, the top financial concern for Millennials (62%) and Gen Xers (55%) is not having enough money to cover unexpected expenses. For 52% of Baby Boomers, it is not being able to retire when they want to.

Asked what could help them achieve their financial goals, for both Millennials (31%) and Gen Xers (25%), it is better job security. Boomers say it is both lower health care costs (27%) and a rising stock market (24%). All generations think they are doing worse financially compared to prior generations, with this being the case among 62% of Millennials, 46% of Gen Xers and 40% of Boomers.

Less than half of each generation says their compensation is keeping up with the cost of their living expenses, with this being true for only 26% of Millennials, 36% of Gen Xers and 42% of Boomers.

Younger workers are more likely to say their loyalty to their company is influenced by how much the company cares about their financial well-being, with this being the case for 46% of Millennials and 44% of Gen Xers, but only 40% of Boomers.

What Workers Are Looking For

Asked what benefit they would like to see added in the future, 27% say financial wellness programs with access to unbiased counselors, 26% say a student loan repayment benefit, 17% say help understanding and using their benefits, 16% say identity theft and credit protection and 8% say mobile access to benefits.

By generation, both Gen Xers (30%) and Boomers (28%) want a financial wellness program the most, while the priority for Millennials (37%) is a student loan repayment benefit.

The percentage of employees who have used services from their employers to help with their personal finances has been steadily rising since 2012, from 51%, to 71% in 2019.

However, workers don’t tend to use these services on an ongoing basis. Rather, it is when they have to make a financial decision (35%) or face a financial crisis (26%). Fifty-seven percent want these services to enable them to make their own decisions, but to include a counselor to validate those decisions.

Nineteen percent of workers are providing financial support for their parents or in-laws, and 42% of parents with children age 21 or older are financially supporting them.

The percentage of employees who find it difficult to meet their household expenses on time each month spiked form 37% in 2018 to 49% in 2019. Conversely, the percentage of employees who would be able to meet their basic expenses if they were out of work for an extended period of time fell from 47% to 31% in that time.

Fifty-two percent of Millennials, 43% of Gen Xers and 31% of Boomers have less than $1,000 saved to deal with an unexpected expense, and the percentage of employees who consistently carry balances on their credit cards rose from 49% in 2019 to 59% this year. Among this group, 37% find it hard to meet their minimum payment each month.

Twenty-nine percent of employees use their credit cards for monthly expenses because they cannot afford them otherwise.

Given all of these factors, it should not come as a surprise that the percentage of people who find it stressful dealing with their finances soared from 47% in 2018 to 67% in 2019. Thirty-five percent say their finances are distracting them at work.

For thirty-two percent, financial worries are impacting their health, and the same percentage says it is impacting their relationships at home. Twenty-one percent say it is impacting their productivity at work, and 10%, their attendance at work.

Sixty-eight percent of stressed workers have less than $50,000 saved for retirement, and 56% expect they will dip into their retirement savings before leaving the workforce.

Asked about their biggest retirement concerns, 51% say running out of money, 28% say health care costs, 25% say not being able to maintain their standard of living, 25% say not being able to meet monthly expenses, and 24% say health issues.

Forty percent plan to postpone their retirement, 50% plan to work part-time in retirement, and 32% plan to work full-time.

Compliance June 24, 2019

8th Circuit Sides with Defense in Stock Drop Appeal

The affirmation once again shows how influential has been the Supreme Court’s 2014 decision known as Fifth Third v. Dudenhoeffer. It also presents an interpretation of how Fifth Third interacts with another significant SCOTUS decision known as Tibble v. Edison.

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The 8th U.S. Circuit Court of Appeals has affirmed a pro-defense district court decision stemming from an Employee Retirement Income Security Act (ERISA) “stock drop” lawsuit.

Like the U.S. District Court for the Eastern District of Missouri, the 8th Circuit has determined that the lead plaintiff—a former employee of SunEdison Semiconductor LLC, referred to in the decision as “Semi” and noted for being at one stage a wholly owned subsidiary of parent company SunEdison, Inc.—has failed to state an actionable claim.

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The outcome echoes the results of many similar lawsuits that have been decided after the Supreme Court established tougher stock drop litigation pleading standards in an influential case known as Fifth-Third v. Dudenhoeffer. Also of note, a different set of plaintiffs has asked the Supreme Court to reconsider “whether Fifth Third’s ‘more harm than good’ pleading standard can be satisfied by generalized allegations that the harm of an inevitable disclosure of an alleged fraud generally increases over time.”

As spelled out during the initial trial, on April 21, 2016, SunEdison filed for bankruptcy. In August 2017, the lead plaintiff brought suit derivatively on behalf of the plan and, in the alternative, as a putative class action on behalf of plan participants. The plaintiff claims that Semi, the investment committee of Semi’s retirement savings plan, and the members of the investment committee breached their fiduciary duties under ERISA.

Specifically, the plaintiff alleges that between July 20, 2015, and April 21, 2016, the defendants knew or should have known that SunEdison was in poor financial condition and faced poor long-term prospects and therefore should have removed SunEdison stock from the plan’s assets. The district court dismissed the complaint as to all defendants for failure to state a claim—other than two named fiduciaries, who were dismissed for lack of timely service—and denied leave to amend the complaint.

The text of the appellate decision notes that the retirement plan at issue was created in May 2014, after Semi spun off from SunEdison. The plan made several investment options available to its participants, including a fund that invested solely in the common stock of Semi’s former corporate parent.

Case documents show the lead plaintiff, among others, elected to exercise this option and held shares of SunEdison common stock through his individual plan account. The plan was later amended to freeze contributions to the SunEdison stock fund, and pursuant to the amendment, effective February 1, 2015, participants could retain their existing investments but could no longer direct additional investments into the SunEdison stock fund.

“By mid-2015, case documents recount, it was widely reported that SunEdison was facing liquidity problems and was in financial distress due to an ambitious series of acquisitions. On July 20, SunEdison issued a press release announcing that it would acquire yet another company, Vivint Solar, Inc., for $2.2 billion. Markets reacted poorly, and SunEdison’s stock price fell from $31.56 per share to $26.01 per share in a week. On August 6, SunEdison issued another press release, reporting a $263 million loss in its second quarter. That same day, the financial press warned that SunEdison had a $10.7 billion corporate debt load and negative cash flow from operations. By the end of the day, SunEdison’s stock closed at $17.08 per share,” the decision states.

By January of the following year, the financial press was reporting that SunEdison might not survive the year, and SunEdison’s stock closed at $3.02 per share. Case documents note that contemporaneous commentary suggested that SunEdison stock was risky “due to its generally disappointing historical performance and feeble growth in earnings per share as well as the company’s high debt-management risk.” In April, SunEdison and certain of its subsidiaries filed for bankruptcy. Between July 20, 2015, and April 21, 2016, the market price of SunEdison stock fell from $31.66 to $0.34. As a result, those who had invested in SunEdison stock through Semi’s retirement plan effectively lost the entire value of their investment.

Turning to its own legal analysis of whether the fiduciaries of the plan committed any actionable breaches during this affair, the 8th Circuit points to a few key precedent-setting cases, most notably Fifth Third.

“The [Supreme Court] opined that where a stock is publicly traded, allegations that a fiduciary should have recognized from publicly available information alone that the market was over- or undervaluing the stock are implausible as a general rule, at least in the absence of special circumstances,” the 8th Circuit explains. “This is because ERISA fiduciaries, who could reasonably see little hope of outperforming the market based solely on their analysis of publicly available information may, as a general matter, prudently rely on the market price. In its analysis, the [Supreme Court] embraced the view that a security’s price in an efficient market reflects all publicly available information and represents the market’s best estimate of its value in light of its riskiness and the future net income flows that those holding it are likely to receive. Noting that the complaint at issue did not point to any special circumstance that rendered reliance on the market price imprudent, the [Supreme Court] remanded for the lower courts to apply its guidance in the first instance.”

With this standard in mind, the 8th Circuit roundly rejects the appeal.

“The similarity between plaintiff’s allegations and those that the Supreme Court deemed insufficient to plausibly state a breach of the duty of prudence in Dudenhoeffer is undeniable,” the decision states. “The complaint presents a series of public announcements by SunEdison that spurred negative commentary by the financial press and concomitant drops in stock price. The complaint faults the defendants for failing to act on this publicly available information and alleges that the declines in SunEdison’s stock price and reports of SunEdison’s extraordinary debts and liquidity problems should have prompted them to investigate and ultimately determine that divesting from SunEdison stock would be prudent as early as July 20, 2015. It contains no allegations that the circumstances indicated to the defendants that they could not rely on the market’s valuation of SunEdison stock.”

The Circuit Court notes that the plaintiff’s attempts to evade Dudenhoeffer are unavailing.

“We reject the argument that Tibble v. Edison International saves the deficient duty-of-prudence allegations,” the decision explains. “The Supreme Court’s acknowledgment in Tibble that an ERISA fiduciary has a continuing duty to monitor trust investments and remove imprudent ones does not exempt this complaint from meeting Dudenhoeffer’s pleading requirements. … Plaintiff cannot distinguish Dudenhoeffer on the basis that it only applies to duty-of-prudence claims in the context of employer securities. The Supreme Court in Dudenhoeffer explicitly rejected the contention that fiduciaries of employee stock ownership plans are entitled to a special presumption of prudence. As such, we see no indication that the court intended to limit Dudenhoeffer to employer securities.”

The full text of the 8th Circuit decision is available here.

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