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Everyone Pays the Cost of Employee Financial Stress

Employers who offer a well-designed 401k plan to employees feel confident that they’re meeting ERISA requirements and doing the right thing for their workers. Yet so many American workers feel such serious financial stress that they’re struggling to manage their finances today, let alone save in a meaningful way for tomorrow. Yes, access to a retirement savings plan is an expected benefit, and one key to attracting and retaining excellent employees. But for the 75% of American workers who are living paycheck to paycheck, their financial duress makes contributing to a retirement plan impossible. Employee financial stress causes presenteeism, absenteeism, abrupt turnover and delayed retirement. This costs employers billions every year. When employers reduce employee financial stress, plan savings can go up, and the cost of lost productivity goes down. Plan advisors who can offer financial education and financial wellness programs along with a targeted retirement plan focused on outcomes help everyone save.

The Cost of Employee Financial Stress

The May 2018 study of “the financial well-being of full-time employed U.S. adults” by PwC quantifies the toll that financial stress takes on America’s workers. A shocking 47% of all workers report that they’re stressed about their finances. Employees distracted by money problems are less productive while they’re at work. On average, they spend up to 3 hours or more a week on their own financial woes. An employee under financial strain misses an extra 3.5 days a year versus one who’s financially confident. And a third of all stressed employees admit that their physical and emotional health has suffered. They cause more accidents at work, they develop expensive health conditions, and their interpersonal skills suffer. At home and work, these employees are contributing less, showing up less, and negatively impacting the people around them. And last year, PwC estimated that an employer with 10,000 workers lost $3.3 million per year due to the ripple effects of employee financial stress.

Replacing Employees Is Expensive

Financial demands like debt, medical expenses, supporting adult children or parents, or emergency ‘life’ expenses put a strain on an employee’s present and future cash flow. This costs employers a bundle in two ways. Aside from lost productivity, businesses pay the cost of increased employee turnover and delayed retirement. Employees who are living paycheck to paycheck are willing to jump ship for any advantage in either pay or benefits, because their survival depends on it. Replacing just one mid-level manager, for example, costs about $8000, and nearly 20% of financially stressed workers have quit jobs in response to their financial problems.

Employees Who Delay Retirement Are Expensive

On the other hand, 42% of all employees are now planning to retire later than they had previously planned. Worse for employers, Baby Boomers are primarily doing it to keep company healthcare coverage. Rather than continuing to work for love of their job, these older workers are planning to stick around for financial reasons. And since they’re the most expensive to insure, employers will see their healthcare costs increase as a direct result of employee financial stress.

Saving vs. Survival

Naturally, employees who struggle to pay their current expenses, pay off their current debt and support their current dependents aren’t saving. They simply don’t have enough money left over to fund their own retirement. They can’t make their future a priority when their present is so uncertain. It’s a vicious circle for both employee and employer. Distracted, stressed and expensive employees stay in their jobs longer. Whether they were unable to save enough to retire on time or tapped into their savings too soon, employers suffer.

Financial Wellness and Education

Financial wellness programs are becoming more and more important to employee health, tenure, and loyalty, and many vendors recognize this. Retirement plans that offer the best chance of a successful retirement are only as healthy as the employees funding it. And it’s not enough, on its own, to put employees in a position to save what they should to achieve the retirement outcome they want. In greater numbers, employees are beginning to feel that financial education is as much a part of retirement planning from their employers as the 401k plan itself.

Two-thirds of employers already offer financial education in some form. The cost of not acting should inspire the remainder to develop their own programs. Employees’ personal money woes add billions to the bottom line each year. This gives plan sponsors at least a billion reasons to add financial education and wellness to their 401k plans. Plans that give employees and employers what they both want – a successful and timely retirement from the workplace – increasingly include financial education and well-being.