The Workplace Benefits Integral to Performance
The 2012 Bank of America Merrill Lynch Workplace Benefits Report
Demand for Personalized Financial Advice Is on the Rise
Workplace-sponsored financial advice
Last year’s study found that four out of five (79%) surveyed employers anticipated greater demand among employees for investment advice regarding their benefit plans. In light of this, it was not surprising to find in this year’s survey results that 56% of companies now offer access to professional advice in the workplace. Larger companies (those with greater than $100 million in 401(k) assets) were the least likely to provide this benefit currently, but a healthy 29% indicated they would like to.
Advice may increase loyalty
Among employees without access to a financial advisor, 50% would like their employer to offer this service — and 43% even indicated that the availability of financial education and advice services at work increases their loyalty to their employer.
Obstacles to utilizing advice
Employees who do not take full advantage of the advice offered to them say that they are too busy (41%) or perceive it to be too complicated (35%). However, 72% of employers think it is because their employees do not view the advice as relevant to them.
Lack of Communication Limits Employee Awareness and Satisfaction
More effective communication needed
Today, more than half (55%) of employers communicate with employees about their financial benefit plans once a year, or less. This may be one of the reasons why 30% of employees don’t feel they are taking full advantage of the financial benefits offered to them and — when asked why — a large number of employees (35%) pointed to not knowing how to take advantage of what’s available or even what their company offers (10%). This lack of communication could be a contributing factor to a relatively high dissatisfaction rate with benefits offered — 48% of those surveyed answered that they are currently less than satisfied with the benefits available to them today.
Using communications as a way to create loyalty
One of the important things we learned from this study is that communications are key to employee awareness and usage of benefits provided. We also confirmed that benefits are an effective way of creating loyalty, which is key to a successful human capital strategy. Companies that bridge these two opportunities by using communications to raise awareness of benefits available will get the greatest return on their investment: a loyal workforce.
Employers and employees cite communications improvement
Both employers and employees agree that much more can — and should — be done to improve benefits communications. The majority of employers cited the need to:
- Discuss the broader advantages of each benefit plan (80%)
- Provide access to financial professionals for advice (79%)
- Increase the number of communication methods (69%)
- Increase the frequency of communications (66%)
- Target communications to specific employees (63%)
Need for Financial Wellness
According to Federal Reserve Board statistics comparing the five-year period from 1980 to 1984 to the most recent five years, Americans have increased their mortgage obligations by 25% and consumer debt by 24%. Not only have homeowners increased their debt, but, also, the percentage of home owners with mortgages who borrowed money using a home equity loan nearly doubled from 6.7% in 1998 to 12.4% in 2007. Similarly, there was a large increase in those who refinanced their home and reduced their home equity to obtain cash — the rate rose from 9.8% in 1998 to 14.3% in 2007, a 46% increase.
Americans’ borrowing was not limited to home mortgages and home equity loans. In 2000, there were 159 million credit card holders with a total of $680 billion in outstanding debt. Experts project that there will be 181 million credit card holders in 2010 with $1.177 trillion in outstanding debt. About half of these cardholders carry no debt, but, for those who do, the average outstanding debt for households was $10,679 at the end of 2008. One year earlier, that average was $10,637 (Nilson Report, 2009).
To make matters worse, recent history indicates that Americans do not save. In the 1970s, the average personal savings rate was 9.6%. For the 40 months between January 2005 and April 2008, the personal savings rate averaged 1.8% (Cashell, 2009). Among the contributing factors for the high debt and low savings rate in the U.S. are higher credit card interest rates, higher cost of education loans, unregulated and abusive mortgage lending practices, and a lack of inflation-adjusted income growth among many employees.
Considering the current financial crisis and the trends illustrated by these facts, it is more important than ever for employees to make wise financial decisions. Many of these financial decisions, for example, choice of health insurer and retirement planning, are made with the assistance of employers. Over 70 million adult workers in the U.S. are employed by a public institution or a private corporation with more than 500 employees (BLS). The leaders of these institutions and corporations are in a unique position to assist their employees in making wise financial decisions. There is a greater need than ever to understand how and why employees make financial decisions, especially suboptimal ones.
Impact of Low Financial Wellness on the Employee
Low levels of financial wellness have harmful impacts on employees. American employees are experiencing increasing amounts of stress associated with financial well-being. An annual online survey conducted by the American Psychological Association (APA, 2006) found that the two greatest concerns reported by respondents were money (59%) and work (59%). However, in 2008, stress associated with money rose to 81% and work to 67% (APA, 2008). Worse yet, in order to cope with the stress, many survey respondents reported engaging in behaviors that will make matters worse, including:
- Drinking alcohol (18%).
- Shopping (18%).
- Smoking (16%).
- Gambling (4%).
- Being unable to do any activities at all (8%).
According to an April 2008 survey by the Kaiser Family Foundation, almost two-thirds (61%) of Americans report having “serious financial problems.” These problems included:
- Paying for gas (44%)
- Getting a good-paying job or raise (29%)
- Paying for health care and health insurance (28%)
- Paying rent or mortgage (19%)
- Paying for food (18%)
- Problems with credit card debt or other personal debt (18%)
- Losing money in the stock market (16%)
A December 2008 survey of employee assistance providers (EAPs) conducted by the Employee Assistance Society of North America found a dramatic increase in requests for financial services from employees (up 88% since 2007) and for help with laid-off employees and downsizing (up 60%).
A majority of employees feel unprepared financially for economic strain, with less than a third of employees (29%) saying they had enough savings to cover more than six months of expenses, according to a 2008 survey by the Principal Financial Group of workers at companies with 10-10,000 employees.
Impact of Low Financial Wellness on the Employer
Employee stress has a negative impact in the workplace. The negative impact of employee’s low financial wellness can be identified from an increase in the amount of:
- Work hours employees spend on personal business
- Days when employees are partially not able to work
- Days when employees are totally not able to work
- Days when employees are late
- Conflicts among workers
- Workers participating in credit counseling
(Kim, Sorhaindo & Garman, 2006)
Impact on Business Performance
Research has demonstrated that employees who are experiencing financial stress have lower levels of organizational commitment and job satisfaction and lower pay satisfaction (Kim and Garman, 2003). For example, in a medium-sized (329 employees), high-technology Israeli company whose annual before-tax income was approximately $17 million (in US dollars), financial stress reduced business performance. The productivity loss of four types of withdrawal was 16.5% of annual before-tax income or $2.8 million. The sources of cost were absenteeism (49%), turnover (27%), withdrawing effort (20%), and lateness (4%).
Experts estimate that between 20% and 40% of an employer’s workforce is experiencing financial stress at any point in time (Garman, Leech, & Grable, 1996). They estimate that these financially stressed employees spend slightly more than 1½ days per 50-week work year on personal business.
Experts estimate that employers who plan and implement financial wellness interventions realize benefits and savings in the form of reduced FICA expenses due to greater participation in flexible spending accounts (FSA), increases in worker productivity, and reductions in payroll and benefits costs because more retirement-eligible employees who wish to retire are able to do so.