Practice Management

Financial Wellness and Healthy Data

By Jon Shuman

In assessing our health, medical professionals rely on reams of data to make assessments and prescribe improvements as appropriate. The data is derived from measuring our blood pressure, cholesterol, height and weight, blood sugar level and other biometrics.

Similarly, it’s also possible for a company to determine the relative financial health of its employees by measuring the effectiveness of its retirement plan, benefits program or both. But employers also need the right data to make accurate assessments and take the right steps to promote improvements.

A good place to start is to gauge the health of your retirement plan. You need to get a handle on basic metrics such as plan participation, deferral rates and overall savings. Beyond those basic readings, plan sponsors need to take the pulse on how well their plan is preparing employees to retire and whether they are adopting the right behaviors for success.

First, can you say with any degree of confidence how many of your employees are on target to retire at age 65 (or when they first qualify for full Social Security benefits)? MassMutual can help determine what percentage of employees are on track to accomplish that specific retirement goal and then help you decide whether the figure is where it should be or if it can be improved. Admittedly, there’s almost always some way to improve current results.

An underperforming retirement plan can affect your company’s long-term business costs. For example, MassMutual’s data shows that the salary, healthcare and Workers Compensation costs for a 64-year-old employee generally exceed the costs of an average 37-year-old new hire by more than $30,000 annually1. The aggregated benefits costs of an employee retiring at age 70 (as opposed to 65) may be $150,000 or more2.

When those costs are multiplied by a handful or even dozens of employees – depending upon the size of your company and your employee demographics – those costs can be significant. But the costs may also be managed and that is where the quest for financial wellness comes in.

Employees often fail to save enough for retirement or drain retirement savings through loans and withdrawals because of financial emergencies. Many American workers struggle with their personal finances and are unprepared to handle an unwelcome financial surprise.

Consider that one in four workers has less than $1,000 saved for financial emergencies, according to the 2017 MassMutual Middle America Financial Security Study3. A third of study respondents said they would struggle to manage a financial emergency of $500 and 45 percent would have difficulty dealing with a $5,000 setback, the study found.

So where do workers go when they don’t have the cash to cover a financial setback or other financial need? All too often, it’s their 401(k).

The National Bureau of Economic Research reports that 20 percent of retirement plan participants borrow money from their 401(k) at any given time and nearly 40 percent do so at some point within a five-year period 4. And that doesn’t include withdrawals. While not all 401(k) loans and withdrawals are made to cover financial emergencies, employer-sponsored retirement plans are an all-too-tempting source of funds.

Employers may attack this problem by viewing their employees’ financial lives through a more holistic lens. While retirement and healthcare benefits are widely available from most employers, they don’t necessarily meet every financial need nor do they address employees’ individual family or financial situations. It takes sophisticated personal finance tools and voluntary benefits to address a wider range of employee financial concerns. Benefits providers such as retirement plan recordkeepers or insurance carriers may be able to help.

More providers are offering or introducing financial planning tools, the best of which help employees make smart decisions about their personal finances by taking into account their individual circumstances and family situations. The most effective tools prioritize benefits that make the most sense for each employee with the implicit understanding that everyone may not be able to afford every benefit that he or she needs.

Introducing voluntary benefits choices such as critical illness and accident insurance, debt management and budgeting services, Health Savings Accounts, and life and disability insurance can enable employees to address more of their own needs at an affordable cost. There is no additional cost to the employer, which simply provides a menu of workplace benefits at affordable rates.

Given the relatively high cost of medical care, especially for serious illnesses, critical illness insurance may help employees offset out of pocket expenses that health insurance may not for a covered critical illness. Accident insurance, on the other hand, may be used to offset out of pocket injury expenses such as emergency room treatment of bumps, bruises and more serious covered accident-related injuries. Those insurance protection benefits not only help employees manage their expenses, they may also protect their retirement savings.

Helping employees get the upper hand on their finances may also have another benefit: greater productivity at work. One in two workers (49 percent) report worrying about money at least once a week and 41 percent say they bring those problems to work just as often, according to MassMutual’s Middle America research3.

Employers are recognizing that financial problems are accompanying employees on the job. More companies are actively looking for solutions to lighten their employees’ money problems. But the road to greater financial health starts with data.

MassMutual has the tools, solutions and capabilities to assess your employees’ overall financial health and provide prescriptive solutions. The Financial Wellness Doctor is in the house.

Jonathan Shuman leads sales of workplace benefits for Massachusetts Mutual Life Insurance Co. (MassMutual).

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1MassMutual’s Viability tool, average retirement age, wages and benefit costs are the average of all company employees between the ages of 62 and 70 in the workforce. Average new hire age, wages and benefit costs are the average of all company employees between the ages of 25 and 50 in the workforce.

 2These figures are based on aggregate data from MassMutual’s Viability tool, including wages and healthcare premiums and expenses and does not include productivity, absenteeism, or turn-over costs.

 3MassMutual Middle American Financial Security Study, June 2017, https://www.massmutual.com/~/media/files/MM-Financial-Security-Study-GEN-POP-617

4National Bureau of Economic Research, Hardship Withdrawals from 401(k) Savings, Borrowing from the Future: 401(k) Plan Loans and Loan Defaults, 2015, http://www.nber.org/papers/w21102

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