Timing Savings Options With a Raise Can Help With Financial Wellness

PLANSPONSOR’s Plan Sponsor of the Year Award Winner General Health System coordinates automatic escalations of employee deferrals 1% each year with merit increases, as do many other retirement plan sponsors. And a study shows this is good practice.

A new report from Commonwealth looked at the results of timing opening a savings account with an employee’s raise, as well as split direct-deposit paychecks, low-interest loans and helping employees open a savings account. Its survey of 100 employees making less than $60,000 found that helping employees navigate financial insecurity can boost their productivity, retention and loyalty.

Seventy-five percent of workers said that if they were offered savings options at the time of a raise, they would be less stressed and more confident about their finances. Commonwealth analysts found that the probability of employees being able to save increases by 2% for every additional dollar earned up to $20 per hour.

“The moment of a raise is a unique opportunity to build employees’ financial security—with benefits for workers and firms alike,” says Timothy Flacke, executive director at Commonwealth. “Employers that offer sensible tools and incentives to help employees save can both bolster worker financial security, and realize the benefits of employees being less impacted by financial anxiety and, ultimately, more productive.”

The survey also found 63% of respondents said they would like the opportunity to use split direct deposit between checking and savings. This also suggests employees would be willing to participate in a sidecar, or rainy day fund, savings account if employers offered one. A survey by the AARP Public Policy Institute found that 70% of workers would voluntarily enroll in such a program.

“Increased wage moments in particular provide a unique opportunity for employers to provide low-cost, high-value and easy to implement interventions,” Commonwealth says. “Employees believe that savings tools provided by their employers would lead them to be happier, more productive employees.”