The Future of Employment-Based Benefits — Hard Facts, and Some Bright Spots

The year 2020 will likely go down as one of the most challenging in recent American history: a pandemic, quarantines, rampant unemployment, civil unrest — it may be difficult for many people to find a silver lining right now.

But there are bright spots. On May 30th, the first American astronauts were launched into space from American soil on an American space shuttle since 2011. Even more amazing, it was the first time any private-sector company in the world had done so. The fact that companies like SpaceX can do great things even in the face of such turmoil reminds me of why I joined the Employee Benefit Research Institute (EBRI) more than two years ago. For American companies to succeed at such momentous endeavors, it takes motivated workers who are healthy and financially stable. Employee benefits can be a crucial part of that equation.

Yet, the availability of health, retirement, and financial wellness benefits may be at a crossroads. As a result of COVID-19’s impact, the American Retirement Association estimates that 42 percent of small businesses may be candidates for 401(k) plan terminations. Using the Retirement Security Projection Model,® Jack VanDerhei, EBRI’s Director of Research, found that if this were true, $31.24 billion would be added to the existing $3.68 trillion U.S. retirement deficit. [1] Further, according to the 2020 Retirement Confidence Survey, more than 6 in 10 workers without a retirement plan have less than $1,000 in savings (vs. just 8 percent of those with a plan).[2]

In that same survey, nearly half of workers reported that their level of debt is a problem, and 77 percent believe it would be helpful to have access to emergency savings accounts or programs. The “Emergency-Fund-Focused Employers: Goals, Motivations, and Challenges” Issue Brief found that — at least in 2019 — employers were stepping up. According to the research, more than 4 in 10 employers expressing at least some interest in offering financial wellness programs said they offer or plan to offer an emergency fund/employee hardship assistance as a financial wellness initiative.[3] Yet, this may be changing. Anecdotally, we are beginning to hear that such programs are being delayed in light of the current crisis. Indeed, we are even re-tooling our third annual Employer Financial Wellbeing Survey — to be fielded in late June and early July — to determine whether employers are actually moving away from programs that are already in place.

Similar concerns exist around health benefits. At a minimum, recent developments like the increased use of telemedicine could change the health benefits landscape, a topic which will be explored in EBRI’s upcoming Consumer Engagement in Health Care Survey. However, EBRI’s Director of the Health Research and Education Program Paul Fronstin—with support from Blue Cross Blue Shield—is also interviewing employers to understand if employer-sponsored health benefits may be on the wane. After all, we now face the first recession since the Affordable Care Act created a marketplace that workers can go to directly, without their employer acting as an intermediary. Could this be a catalyst for employers to reduce or even eliminate their health benefits?

But let’s get back to the idea of bright spots. This week, EBRI and J.P. Morgan Asset Management released a paper based on connecting consumer and 401(k) data on a large scale. The collaboration is intended to develop an understanding of workers’ full financial picture by pairing their 401(k) activity (savings, investments, etc.) with their spending behaviors.  The initial foray into the research collaboration — “The 3% difference: What leads to higher retirement savings rates?” — explores what is driving the savings behavior of 401(k) participants who contribute at low, moderate, or high rates to their plans. It finds that spending patterns do indeed differ among the three groups — most interestingly between low and moderate savers, whose wages are actually very similar. Low savers are more prone to spend on transportation, housing, and food than moderate savers — at the potential cost of being able to save more. But, of course, the question is why? Future research will examine this in greater detail and ideally contribute to greater retirement and overall financial security by adding to a constructive dialogue on the forces behind U.S. workers’ savings habits.

Yes, it’s been a challenging year. But one thing that’s been reinforced by all that is happening is the importance of facts, not just inferred data, when it comes to tackling the most difficult issues we face today. Without facts, we cannot understand how to quarantine and for what length of time. Without facts, we also cannot determine how we can get American companies — and the economy — back on sound footing. EBRI remains dedicated to data and facts. We hope you join us in upcoming webinars and our end-of-month virtual Policy Forum to learn more about what these facts are telling us about the future of employment-based benefits and what policymakers, employers, and providers can do to support the well-being of American workers.

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President and CEO, EBRI

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