24 April 2024

Participant Personal Debt Gains Attention

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Shane Bartling said addressing the personal debt issue early is the best way to help participants.

For plan sponsors looking to improve employees' retirement readiness, personal debt is an area of special concern.

A growing number of employers in recent years have started supporting employees in debt management.

In a financial wellness survey taken by 687 Durham (N.C.) Public School employees last year, employee debt levels received a grade of D or F across nearly every demographic measured, said Amy L. Simonson, vice president, finance and operations at Verity Asset Management Inc., a retirement consultant to the district.

Hoping to help employees better plan for their retirement needs and prevent debt from crowding out retirement savings, DPS officials launched a financial wellness program last year that focused, in part, on debt management. In addition to providing access to online articles, videos and blogs, DPS officials brought in members of the state's employee credit union to conduct a debt management workshop, which addressed everything from credit card debt to mortgage debt.

Along with increased employee savings, employers cite reduced employee stress and improvements in workforce retention and recruitment as reasons for their efforts.

"When you look at what are the challenges to participants having successful (retirement) outcomes, very, very high on the list is personal debt," said Todd Timmerman, Charlotte, N.C.-based founder and managing director of Retirement Plan Analytics, which provides fiduciary consulting services to sponsors along with financial wellness services. "If we didn't come up with a solution to help participants with personal debt — as much as we can do with behavioral finance and good fiduciary solutions and value on expenses — it was really going to be hard for our clients to have successful (retirement) plans."

Durham Public Schools is an RPA financial wellness client.

Said Shane Bartling, San Francisco-based senior consultant at Willis Towers Watson PLC: "The earlier you can engage an employee in the process of planning their finances over the course of their life ... the better, before they make commitments that might crowd out retirement savings."

While improvements have been made in recent years, "American families just reaching retirement or those newly retired are more likely to have debt — and higher levels of debt — than past generations, specifically those in the 1990s," the Employee Benefit Research Institute said in its triennial debt report released in March.

In a separate survey report by the Society of Actuaries in January, 55% of older U.S. workers reported having mortgage debt, while 46% had credit card debt, and 44% had a personal or car loan. Some 1,000 active workers between the ages of 45 and 80 were surveyed.

In Mr. Bartling's view, broad workplace debt management programs are a "nascent trend." The consulting firm has several clients building their approach to supporting employees in debt management and evaluating what role is appropriate as an employer, he said.

An initial step Mr. Bartling said he believes a number of employers already have taken is packaging educational resources in ways easier for employees to digest. A step beyond that would be offering interactive decision-support tools, followed by access to independent financial counseling and engaging providers that provide access to credit, he said. That last step is where the "biggest governance hurdle exists," Mr. Bartling said. "How do you perform ongoing due diligence of that?"

A key challenge: As lenders expand their capabilities, employers that started out providing assistance on the student loan side might find themselves unintentionally offering a broader lending facility to their workforce.

An Alight Solutions survey published earlier this year suggests it is still early innings for workplace debt management programs. Of the 187 employers surveyed, only 23% said they believe they should help their employees with debt management. That compares to 46% of employees who believe employers should provide debt management assistance.

Encouraging DC participation

While Durham Public School employees participate in a defined benefit plan — the $68 billion North Carolina Teachers' and State Employees' Retirement System — school district officials said they would like to see employees' participation in the state's supplemental defined contribution plans increase.

At the time the financial wellness campaign was launched, only about 7.5% of DPS employees participated in the state's supplemental retirement plans, Verity's Ms. Simonson said. DPS officials are waiting on updated statistics.

In June 2017 meeting materials prepared for the board of education, district finance officials indicated only 55% of DPS employees were on track to replace 80% of their income in retirement when pension benefits and Social Security were taken into account.

For those considering providing debt management tools and resources, Mr. Timmerman and others stressed the importance of keeping employees engaged through techniques like interactive technology, access to coaching, and incentives. "If you don't engage participants, you're really not going to impact behavior," Mr. Timmerman said.

Seaford, Del.-based Trinity Logistics Inc. has taken that message to heart. Last year, employees who completed all four steps of the company's new financial wellness campaign — which focused on debt management, among other areas — were entered into a drawing where the prizes were $500 toward debt repayment or a $500 savings bond. The six winners all selected debt repayment as their prize, said Doug Potvin, Trinity's CFO.

A recognition that debt overload could contribute to employee stress and anxiety and reduce productivity was one reason the 250-person logistics company decided to include debt management among the financial wellness program's five focus areas, Mr. Potvin said. Retirement, college savings, building an emergency fund and budgeting were the other focus areas in the program, which is administered by Retirement Plan Analytics.

The company also hoped that by reducing debt, employees would be encouraged to increase retirement, health-care or college savings.

The nearly 50 employees who participated in all four steps of the program — an initial financial wellness survey, a webinar, a free individual coaching session and a follow-up financial wellness assessment — reported eliminating nearly $48,000 in debt and saving more than $138,000 combined. Employees were given about six months to complete all four steps. Eliminating debt was reported as the top item among those who did.

Mr. Potvin said he hopes to get even more employees involved in the financial coaching sessions and believes more would have taken advantage under a longer timeline. More than 130 employees completed the initial survey.

"I believe the coaching part of it is the biggest part," Mr. Potvin said. Employees "really need someone to talk to."

RPA also provides fiduciary consulting services to the company's roughly $10 million 401(k) plan. Financial education company Financial Finesse, El Segundo, Calif., provided the online materials for Trinity's and Durham Public Schools' programs.

Other employers that have provided tools or assistance on personal debt management include Evening Post Industries and BP PLC.

At Evening Post, debt management is covered in at least two of the company's four seminar series provided by Prudential, the company's disability and life insurance carrier, said Joe Waring, CFO of the Charleston, S.C.-based media company. Mr. Waring said he learned debt was "a significant obstacle" to people saving. The company administers an $88 million 401(k) plan.

Debt management is "a fundamental piece of any comprehensive financial education" program and is a key component of BP's financial wellness program, said Cliff York, Houston-based head of pensions and benefits, Americas, at BP.

BP's program, which includes webinars, self-paced tutorials and individual counseling offered through PricewaterhouseCoopers International Ltd., earned the oil and gas company an Excellence and Innovation Award from Pensions & Investments last year.

Click here for the original article from Investment News.

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