Facilitate Employee Financial Wellness with the Optimal Retirement Plan Design
Employee financial wellness has become one of the favorite buzz phrases in the industry over the past decade; and the Covid-induced economic challenges of this past year are making it more of a necessity. Employer-sponsored retirement plans play a pivotal role in employee financial wellness programs. In this article, we will put forth a working definition of employee financial wellness, explore why employee financial wellness programs have become a key focus of employers and understand how participating in the optimal retirement plan can help employees on the path toward financial wellness.
What is employee financial wellness and how is it measured? Is it a point-in-time or a continuum or both? Is it measured by a credit score, bank statement, retirement plan account balance or other? When is someone “financially well?” While there is no single, agreed-upon definition, there are several common characteristics that surveys, researchers, and companies use in practice.
The Financial Health Network (FHN) is a not-for-profit organization that pioneered financial wellness research starting in 2004, and continues its work. Over the years FHN has come to define financial wellness as, “… a composite measurement of a person’s financial life. Unlike narrow metrics like credit scores, financial health assesses whether people are spending, saving, borrowing, and planning in a way that will enable them to be resilient and pursue opportunities over time.”
Following the Great Recession of 2007-2009, the Consumer Financial Protection Bureau (CFPB) turned up the magnification on employee financial wellness. It found that in the wake of the recession, many employers saw how financial distress reduces worker productivity, increases absenteeism, and undermines employees’ health. The CFPB sees financial wellness is a comprehensive approach. Industry surveys define financial wellness programs as those that assess and support an employee’s “complete financial picture” or the “overall financial health of an individual.” The distinction here is that financial wellness programs do not take a snapshot approach, focusing on a single aspect of financial planning such as retirement or college savings. Financial wellness programs look at how all the pieces of an individual’s financial life fit together.
FHN focuses on eight indicators of financial health that relate to spending, saving, borrowing and planning. Those indicators are
Eight Indicators of Financial Health