RETIREMENT INSIGHTS

Financial well being post-pandemic: What employees may need

Apr 27, 2021
  • BlackRock

The pandemic didn’t cause America’s retirement crisis – but it did shine a spotlight on some of its deepest cracks. Chief among them: the precariousness of people’s short- and long-term financial security.

As we start to envision a post-COVID world, all eyes are on recovery. For employers, this is prompting a shift in focus from immediate, relief-oriented benefits to ones that address barriers to holistic financial well-being.

In a recent webcast, Anne Ackerley, Head of BlackRock’s Retirement Group, Kathleen Kelly, Managing Partner at Compass Financial Partners, A Marsh & McLennan Agency LLC Company and Sue Lindholm, Director of Total Rewards at Reynolds Consumer Products, talked about the importance of saving for the short and long term, and how plan sponsors can help.

Emergency savings: moving to the forefront

In recent years, employers have become increasingly focused on emergency savings as a building block of financial well-being. As the oft-cited stat from the Federal Reserve makes clear, nearly 40% of Americans lacked enough savings to cover a $400 emergency expense.1

That was prior to the pandemic. As millions now deal with the fallout from disruptions to employment, everyday finances are under even greater strain. This makes it even more difficult (if not impossible) to save for the longer-term.

Encouragingly, this is an area where front-footed employers are rolling up their sleeves to help.

“We have forever changed the view with which we look at financial security,” Kelly, from Compass Financial, said. “We can’t expect retirement readiness, or for participants to reach their retirement goal, if the rest of their financial house isn’t in order.”

Given the importance of emergency savings to overall financial well-being, employers can help reduce complexity and provide guidance that encourages greater participation over the course of their employees’ careers.

Reynolds Consumer Products, the leading household products company, has already begun the journey.

Reynolds Consumer Products: A Case Study

Reynolds actively listens to what their employees need from their 401(k) plan, which is perhaps one reason why their participation rates are so high. So, when Sue Lindholm, Director of Total Rewards, noticed that 30% of participating employees were taking loans from their 401(k), she did some digging.

“We wanted to know why participants were taking these loans. So we asked them,” Lindholm said. “We sent out a simple, two-question survey asking what they used the loan for and why they took the money from their 401(k), as opposed to another account.”

The answers illuminated the need for a stronger emergency savings solution. On average, most people used the money to meet an immediate financial need or to pay down non-student loan debt. They tapped their 401(k) for the funds because they liked the idea of borrowing from themselves and paying themselves back through their paychecks.

“Viewed in this light, our high loan rate is really an emergency savings issue. And that changes how we approach a solution,” said Lindholm.

To start, the company took targeted steps to discourage loan-taking behavior, including limiting the allowable amount and prohibiting employees from taking loans from the company match.

At the same time, Reynolds has incorporated more robust financial education into their wellness program.  Reynolds promotes financial webinars including topics on budgeting, the importance of emergency savings and more.  Employees attending the webinars earn points as part of the wellness program that reduce the cost of their medical premiums.

Rather than strive for a silver bullet solution, Reynolds hopes this multi-pronged approach will reduce the loan rate, thereby enhancing their employees’ financial well-being in the long run.

Long-term savings: The next frontier

The pandemic made it clear that short- and long-term savings are inextricably linked. Simply put: You can’t save for tomorrow, if you’re struggling to make ends meet today.

As with emergency savings, employees may look to their companies for guidance when it comes to saving for the long term. In BlackRock’s 2021 DC Pulse survey, for instance, 80% of respondents said it would be helpful if their plan advised them on the ideal amount of savings for someone their age.

But building an adequate nest egg is only half of the equation; retirees must also balance their spending so that they don’t outlive their savings. That’s why retirement income is top-of-mind for employers and employees, alike.

“One of the reasons we think that a guaranteed income solution is so important is because it helps to create the guardrails for spending,” Kelly said. “We’re essentially creating a personal pension plan for each one of those participants.”

Policymakers also see the need to enhance retirement security and, in 2019, passed bipartisan legislation that included a safe harbor provision for employers to offer in-plan annuities.

“With pensions falling by the wayside, Social Security is most people’s sole form of guaranteed income today. Unfortunately, that benefit alone won’t be enough for most people,” said Ackerley “Millions of American workers would benefit from having some guaranteed income directly in their 401(k) plan, where they’re already saving for retirement.”

Moving forward: Promoting collaboration across the ecosystem

When it comes to the path ahead, Ackerley, Kelly and Lindholm agreed: No one firm can solve this in isolation. While there will be multiple solutions around guaranteed income, innovating in this space will require collaboration across the ecosystem – from asset managers and insurance companies to recordkeepers, plan sponsors, consultants, tech firms and beyond. 

“We have to work together, and we should build on what’s working,” said Ackerley. “We have a philosophy about this: it must be low-cost, it must be simple, and we must give people some choice.”