COVID-19 strained participant financial wellness: Can employers help them recover?

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With COVID-19 still a top concern for employers, protecting the health and wellbeing of workers is of course paramount. But the effects of the pandemic are not just limited to physical and mental health: financial health is also suffering. The crisis has exacerbated the problem, but it is not exactly a sudden event.

Participants’ confidence in their financial prospects has been relatively low for years. Recently, financial challenges from the COVID-19 crisis have made the situation even more unsafe for many. Because of this, plan sponsors – and employers in general – now have the opportunity to chat with employees on financial topics that involve more than just retirement planning.

Employees are concerned about financial well-being

Before plan sponsors tackle the commitment, they should first think again about what they are looking for solutions for. While financial malaise is a long-standing problem, the recent impact of COVID-19 on financial well-being particularly highlights how it has transformed the retirement planning course for many.

Nearly 30% of plan participants in our recent Inside the Minds of Plan Participants survey said the pandemic changed how and when they retire. And last year, 17% of respondents used their retirement savings to make a living – many more turned to emergency funds or credit cards to make ends meet (see chart below).

We believe our results suggest that while people are using credit cards and emergency savings as a first line of defense, if the pandemic drags on, there could be significantly more retirement savings if those other assets dry up.

Confidence in retirement coupled with broader financial well-being

The challenges of financial well-being weigh particularly heavily on participants who are convinced of their retirement prospects. Since AB began surveying participants in 2005, on average only around one in three (29%) feels either “confident” or “very confident” about their pension prospects. This year’s survey found a confidence level of 35% – better than the long-term average, but a big drop from 2018, when nearly half (47%) seemed confident about retirement. In general terms, life is clearly a significant financial challenge for many people. When asked to describe their overall financial life, 31% said they can make ends meet but still struggle, and around one in ten said they did he can hardly make ends meet (see graphic below).

With so many moving parts of financial health today, securing a comfortable retirement can no longer be pursued in a vacuum – it depends on too many other financial fundamentals in life. Credit card and college loan debt, insurance premiums, healthcare costs, taxes – even basics like budgeting – all play a role in an individual’s financial well-being. Participants increasingly want and need employers to help them connect these dots – and financial wellness programs can be just the right tool.

A win-win situation for participants and sponsors

Although widely used by larger employers, financial wellness programs have still not reached the majority of American workers. But jobs that have them report strong positive effects. In our most recent survey of Plan Sponsors, employers with these programs report that their employees are more engaged and productive, which we believe will help improve their financial literacy, confidence and the likelihood that they will retire if they choose (see Graphic below).

Learn your way to a better financial life

For all of their benefits and ability to help, financial wellness programs are needed more than ever. While they are viewed as complementary offerings, there is nothing complementary to the positive impact that they can have. The key is to offer a wide variety of topics that will reach a diverse workforce base with different financial acumen and financial needs.

When choosing the programs on offer, it can be helpful to ask employees about their topics of interest, which can improve engagement. For example, older workers may appreciate topics like taking retirement income and understanding long-term health insurance, while younger workers may be more interested in deciphering creditworthiness, managing debt, and building budgets. Saving for a child’s college expenses and considerations in choosing a financial advisor would likely generate greater interest.

On average, participants in financial wellness programs tend to skew white and male higher-income individuals. This underscores the opportunities and needs (e.g. lack of accessibility) among financially vulnerable workers, who are mainly women, people of color and low paid workers. This demographic data is closely related to the comfort and confidence level of employers offering such programs, according to the Defined Contribution Institutional Investment Association (DCIIA).

That is, the people who least trust their employers are the ones in need of financial help the most. On this basis, financial wellness programs need to appeal to a wider workforce but also remain relevant to other and underserved segments.

The roadmap for financial wellbeing starts with solid engagement

An employee’s interest in a topic and their enjoyment of who and how the program is carried out can also determine the tone and commitment. Therefore, employers need to appreciate even small nuances in their audience.

Effective financial wellness programs identify and close knowledge gaps in all employee segments. Knowing participants well and what they want can be really helpful, and workplace surveys are a good place to start.

Offering programs across different media also helps increase engagement, as not all employees enjoy learning in the same way. For example, employees may feel uncomfortable about openly sharing their financial challenges like deleveraging in a group meeting, but they would be more likely to benefit from a virtual webinar that is viewed privately or from a one-on-one meeting with a financial expert.

In the many years we’ve surveyed plan participants, we’ve seen workers continue to struggle with financial health. Our findings this year are particularly profound and shed even more light on those most affected and the topics that are most urgently needed or in great demand. But now it is up to the sponsors to plan on taking the next steps to build a higher level of financial skill that workers can take with them through retirement.

Jennifer DeLong is Managing Director, Head — Defined Contribution at AB.

Heather Balley is Director of Participant Communications — Defined Contribution at AB.

The views expressed herein do not constitute research, investment advice or trading recommendations and do not necessarily reflect the views of all of AB’s portfolio management teams and are subject to change over time.

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