Employers Who Help Employees in Need: Valued Employers, Indeed

“When it all closes in, there are only two kinds of people: best friends and everyone else.” — Emery LordConnectingtheDots

This quote struck home with me as I thought of employers’ role in helping workers through what is potentially one of the most challenging times in their lives thanks to the current pandemic. The impacts may be emotional, physical, and financial.

Here’s why: A number of years ago, my husband had an accident that put him in the hospital for a week and incapacitated him at home for several weeks after. My colleagues at work and my employer could not have been more supportive. Co-workers covered for me so that I could take care of my husband, and my employer allowed me as much flexibility in my schedule as I needed. After things got back to normal for me, I never forgot how my employer and colleagues helped me out when I needed it most, and I believe it inspired in me greater loyalty and productivity.

Such is the challenge many employers face today: How do they support their employees in the face of a global crisis — show they care — even as they themselves struggle to stay afloat?

The good news is that many employers have already set themselves on the road to help employees by offering financial wellness initiatives and, in particular, emergency savings assistance. That’s because, even before the pandemic, workers demonstrated challenges with affording emergency needs. We know research from the Federal Reserve shows that families with working heads aren’t saving adequately for emergencies. According to EBRI estimates from Fed data, only 20.1 percent of such families had liquid savings of more than three months of their family income. In other words, most workers were struggling with unexpected expenses even before the pandemic.

And employers were taking notice. According to EBRI’s February Issue Brief — from a survey fielded in 2019 — titled “Emergency-Fund-Focused Employers: Goals, Motivations, and Challenges,” more than 4 in 10 (43.6 percent) employers that expressed at least some interest in offering financial wellness programs said they offer (28.2 percent) or plan to offer (15.3 percent) an emergency fund/employee hardship assistance as a financial wellness initiative. Granted, much of what is being offered is in the form of more traditional approaches to emergency help, such as employee relief/compassion funds (44 percent). However, employers expressed considerable interest in more cutting-edge offerings such as sidecar or rainy day accounts. While only 8 percent of the “emergency-fund-focused” employers offered such products, nearly 1 in 5 emergency-fund-focused respondents (19 percent) said they were planning to offer rainy day accounts; another 29 percent expressed some interest in such offerings.

Still, not everyone is on board with employers offering emergency savings help; some have suggested that employers should concentrate on improving job quality and pay and not just on ways to make it easier for workers to save for emergencies. And indeed, the Fed report notes that while only 56 percent of adults with family income less than $40,000 a year said they are doing okay financially, 79 percent of those earning between $40,000 and $100,000 annually reported this to be true, and more than 90 percent of adults with income greater than $100,000 a year reported this. Further, in the current situation, varying income will clearly be a source of financial fragility. According to the Fed report, one-third of those with varying income said they struggled to pay their bills at least once in the prior year due to their varying income.

However, the counterpoint to this is the high incidence of employers who point out that many of their financially strapped workers are earning six-figure salaries. Underscoring this, the Consumer Financial Protection Bureau reports that while income is a predictor of financial behavior, both financial skill and financial self-efficacy are materially more significant predictors. In other words, financial stability is not just predicated on salary level but also on an individual’s skill and confidence in navigating their finances.

As such, employers’ efforts in providing emergency savings help appear well founded. In the “Emergency-Fund-Focused Employers: Goals, Motivations, and Challenges” Issue Brief, the number one reason for offering emergency savings help was improved overall worker satisfaction (44 percent). At a Financial Finesse employer conference, I noted that it was interesting that the primary motivation of employers appears to be altruistic. However, the employers in the room agreed that worker satisfaction is both altruistic and bottom-line oriented: Satisfied employees are loyal and productive employees.

Employee satisfaction can be difficult to measure. In contrast to the more than 4 in 10 employers that listed worker satisfaction as a reason to offer financial security initiatives such as emergency savings help, fewer than 3 in 10 said that employee satisfaction is used to measure their initiatives’ effectiveness. Meanwhile, the majority of emergency-fund-focused employers said they fully or partially pay for employees’ financial wellness initiatives, and they reported the average annual per-employee cost for initiatives to be $110.68. In short, if employers cannot connect the dots between improving overall worker satisfaction and offering emergency savings help, it will be difficult for them to justify paying for such initiatives.

To learn more about the latest trends in emergency savings help, join us on April 8 for a webinar on this topic.


The members of EBRI’s Financial Wellbeing Research Center understand this very well and are dedicated to EBRI’s mission of using empirical data to make those connections. Together, we are building a database of employee financial wellness initiatives and will explore how such initiatives move the dial on employee behavior in a variety of different ways. The goal is to provide research for employers as they continue seeking to make the case for assisting workers in need.

One more potentially pertinent quote about the current crisis: “I’ve got some bad news and I’ve got some good news. Nothing lasts forever.” (Kate McGahan). Well, perhaps one thing may last if my experience is any guide: Employees’ view of how their employers helped them navigate this crisis.

Consumers or Patients: The Role of Individuals vs. Employers in Health Care Spending Choices

In a roundtable co-hosted by EBRI and the Midwest Business Group on Health in Chicago last year, Boeing’s Jason Parrott and Walgreens Boots Alliances’ Tom Sondergeld debated how well various aspects of consumer-driven health care — such as deductibles and copays — were helping to control both costs and the value of health care services. The answer was clearly “not as well as we’d like.” And then the entire group challenged whether health care recipients are truly even consumers in the traditional sense at all. Are they not in fact patients? And isn’t there a fundamental difference between a patient and a consumer? This point was intriguing. When people are in need of health care, it’s because they are sick. And anyone who has ever been sick knows that the highest priority tends to be getting well, not shopping around for value-based services.

balance-billingIt’s a point Paul Fronstin and his co-authors underscore in their recent Issue Brief, “Cost Differences for Oncology Medicines Based on Site of Treatment.” Evidence from the data[1] shows that payments for infused cancer medicines in the commercial and employment-based markets are nearly two times higher, on average, when services are provided in hospital outpatient departments vs. physician offices. However, it is arguable whether patients are really getting two times the value. On the surface it seems there would be a difference. After all, someone referred to a hospital outpatient department to receive chemo might assume that this would be a better option than a physician office. What if they had a negative reaction to the chemo and needed emergency care? Wouldn’t it be better to be in a hospital outpatient office where an emergency room would be just around the corner vs. a physician office where it would not?

This thinking, however, is not necessarily on point. It is not correct to assume that hospital outpatient departments are actually located in hospitals. Generally, in fact, they aren’t, often having previously been physicians’ offices that were bought by a hospital. But even when hospital outpatient departments are located on a hospital campus, they can be as far as 250 yards away from the main building and still be considered hospital based. So in many cases, even if a patient receiving chemo in a hospital outpatient department needed emergency services, they would have similar transportation issues — i.e., needing to be transported to an emergency room — to a patient in a physician office.

Differences in pricing that do not necessarily align with quality of care, of course, extend beyond chemo costs, as I recently learned from personal experience. Both my husband and I required the same medical procedure recently, but since we have different primary care physicians, we were offered two very different recommendations for care. I was sent to a physician office; he was sent to a hospital outpatient department. Both procedures went well, with the only noticeable difference from the “consumer’s” perspective — mine and his — being that his procedure took longer and he was required to leave in a wheelchair. The other noticeable difference came when we saw our insurance claims. His was more than three times higher than mine.

Note that because both procedures were covered by our health care insurance, neither of us were particularly motivated to second-guess our doctors’ recommendations based on price. But what about based on quality of service? Perhaps it is lack of transparency that caused me not to question whether I was better off in a hospital outpatient department or a physician office for my procedure. Perhaps I just trust my doctor’s recommendation. But this is definitely not how I behave when I make other consumption choices. For example, I’m in the market for a new health club. So far, I’ve scoured website reviews, measured the distance from my house to health clubs, compared prices, and planned walk-throughs. The other day, in fact, I spotted someone wearing workout clothes near a health club and asked her how she liked the club.

It may be argued that consumerism when it comes to health care choices is evolving. In an EBRIefing on Consumer Engagement in Health Care Among Millennials, Baby Boomers, and Generation X, Paul Fronstin showed how Millennials are more likely than other generations to seek out cost information about health care, check the quality rating of a doctor or hospital before receiving care, talk to doctors about treatment options and costs, and try to find the cost of health care services before getting care. Further, in the recent EBRI/Greenwald & Associates Consumer Engagement in Health Care Survey, members of high-deductible health plans were more likely than members of traditional health plans to demonstrate consumer research patterns such as those described above.

In the meantime, what can employers do to help? In the site of care Issue Brief, Fronstin et al. concluded that employer intervention should be a consideration and that employers could cut their drug costs nearly in half simply by shifting patients to physician office settings or negotiating site-neutral pricing for medicines. This suggests that seeking to turn employees into consumers of health benefits is not the only answer when it comes to controlling costs while maintaining quality.

[1] The analysis was based on 18,195 users of the top 37 infused oncology drugs prescribed to employment-based and commercially insured patients in 2016.

Lessons From Down Under: The Problem With Getting Half of the Retirement Equation Right

At this week’s Leadership Symposium at the Association of Superannuation Funds of Australia (ASFA) Conference in Melbourne I learned that things really are upside down in this part of the world.landdownunder

Susan Thorp of the University of Sydney was explaining how successfully Australia’s superannuation system had solved the retirement savings dilemma for Australians. And indeed, the statistics are impressive: According to ASFA, as of the end of June 2019, Australian workers had amassed nearly $3 trillion in the superannuation system.[1] A substantial number of them are beginning to enter retirement with significant balances.

About Australia’s Superannuation System

For those unfamiliar, since 2014, Australia’s superannuation system has required that Australian employers contribute 9.5 percent of workers’ pay into a defined contribution system similar to the United States’ 401(k) system. Workers must keep their money in the system until they retire or are disabled. At that point, individuals generally have tax-free access to their nest egg.

However, as Professor Thorp explained, the superannuation system has really solved only half of the retirement equation: While retirement savings in Australia is strong, “we absolutely haven’t solved the retirement spending dilemma,” she noted. She cited the following research on superannuation drawdown behavior: The majority of retirement withdrawals in the superannuation system are close to the minimum, and most retirees see their superannuation balance actually increase slightly in most years. If this continues, many Australians will die with substantial amounts of their savings unspent — and this is regardless of the size of the superannuation fund balance.[2]

That may sound like a nice problem to have — so much money in retirement that you cannot spend it all. But that’s really not what’s happening here. As EBRI’s research has noted about U.S. retirees in the current environment[3], Australian retirees seem to be hoarding their nest egg not because they want to but out of fear of longevity risk. Essentially, they are self-insuring so that they won’t run out of money as they age. That is suboptimal on many levels.

First, as Moshe Milevsky of York University pointed out in his presentation at the same symposium, the probability that even a healthy person will live beyond age 95 is extremely low, and budgeting for low-probability events isn’t very practical. It would be like setting aside $100,000 just in case someone is injured on your property and sues you.  Think of all the things you’d be giving up — vacations, a better house, a nicer car, higher-quality education for you or your family — in order to have that money sit in a bank account in anticipation of this highly unlikely event.

That’s essentially what these retirees are doing. They are resigning themselves to a lower standard of living in retirement after having accepted a reduced standard of living while working in order to save for retirement. Suboptimal indeed.

At the symposium, we brainstormed ways to help retirees tackle this dilemma. Some suggested it’s a math problem: Retirees are ill-equipped to figure out how to effectively spend their money and need guidance. Others suggested it’s a framing issue: Retirees continue to think of their nest egg as a balance, and when it comes to balances, growth is good. Instead, they should think about their retirement savings as an income stream and consider how sizable that income stream should be. Still others wondered if we were just all making a fuss about nothing. Maybe retirees are just happy having a tidy sum that they can eventually bequeath to their heirs.

One of the superannuation fund administrators pointed out that we tend to oversimplify the process of spending in retirement: Just as people have many needs along the way as they accumulate money for retirement, so the path to decumulation is not likely to be one-size-fits-all but instead quite heterogeneous.

EBRI’s Retirement Security Research Center (RSRC) has identified this exact dynamic as it has explored drawdown behavior in mining its empirical 401(k) and individual retirement account (IRA) databases and in examining data from the Health and Retirement Study. Members of the RSRC have concluded that it could help to develop retirement “personas” in order to identify the finite set of approaches that people take to spending down their assets — and to thereby best identify products, services, education, and policy that can support them. This could also involve adding a qualitative aspect to the research as well by actually talking to retirees about why they engage in the behaviors they do.

This is exciting work and immensely valuable: People both in Australia and in the United States work very hard for their earnings. They deserve to be able to spend it optimally throughout their lifetime. Of course, that also involves developing a consensus around what “optimal” means on an individual/household basis — as well as from a societal standpoint.

[1] https://www.superannuation.asn.au/resources/superannuation-statistics

[2] Andrew Reeson, Thomas Sneddon, Zili Zhu, Alec Stephenson, Elizabeth V. Hobman, Peter Toscas. “Superannuation drawdown behaviour: An analysis of longitudinal data.” Canberra: CSIRO-Monash Working Paper, May 2016.

[3] More specifically, EBRI’s 2018 Issue Brief found that within the first 18 years of retirement, individuals with less than $200,000 in non-housing assets immediately before retirement had spent down (at the median) about one-quarter of their assets; those with between $200,000 and $500,000 immediately before retirement had spent down 27.2 percent. Retirees with at least $500,000 immediately before retirement had spent down only 11.8 percent within the first 20 years of retirement at the median. https://www.ebri.org/publications/research-publications/issue-briefs/content/asset-decumulation-or-asset-preservation-what-guides-retirement-spending

Don’t Let Poor Communication Ruin Your Event

Fans of the TV show Modern Family may remember the episode where Cameron’s fundraising event was ruined because Mitchell forgot to send out the invites. Mitchell says, “I was going to mail the invitations, so I put them in the back of the van, but I put my gym bag on top. I feel terrible. I haven’t been to the gym in six weeks. And I ruined Cam’s event.”

That is how I felt the other night when I found out my ride-sharing driver did not know about an important benefit his employer made available to him. The driver was telling me about how his wife was on the verge of losing her car. She’d been out of work for a year, and now, having secured a new job, she feared she couldn’t get to it because her car was about to be repossessed. My driver needed $437.59 for car payments immediately, and he didn’t know what to do.

First, I was struck by how close that number is to a much quoted financial wellness statistic: According to Federal Reserve data, about a third of workers say could not generate $400 out of a rainy day fund to cover expenses in case of sickness, job loss, economic downturn, or other emergencies.

EBRI actually finds an even more dire picture than this. When calculating how much liquid savings families actually report is available to cover such expense levels, we calculate that of all families with working heads, only 20.1 percent had liquid savings of more than three months of their family income. Even if the threshold is reduced to 75 percent of three months of family income, only 25.7 percent of families with working heads had liquid savings in excess of this amount.

Employers and contractors, such as ride-sharing services, are taking note. According to EBRI’s recent Issue Brief, 2019 Employer Approaches to Financial Wellbeing Solutions,” employer assistance in creating emergency funds or meeting liquidity needs is on the rise. More employers with at least 500 employees and some interest in employee financial wellness initiatives reported offering payroll advances in 2019 than in 2018 (17 percent and 12 percent, respectively). More than a quarter reported offering emergency funds or employee hardship assistance. Nearly half (44 percent) offered an employee relief or compassion fund, 36 percent offered part-time donations or leave-sharing, and 35 percent offered matching contributions to employees’ personal accounts. Among those that already offer an emergency fund, the average number of such benefits offered was 2.5.

Unfortunately, these programs may be well-kept secrets. When I asked my driver if he was aware that his employer offered an app that would allow him to access his pay in real time, he was surprised. The app allows drivers to snap a photo of their electronic timesheet to show they worked and then allows them to cash out instantaneously, with the app depositing the earnings into their bank accounts. In other words, it was the perfect benefit for the situation in which my driver found himself, and yet he had no idea it existed. What a missed opportunity.

I know. Retirement professionals are groaning right now. Having such immediate payroll access could certainly have a bad effect on saving. But the reality is that if employers feel the need to provide emergency savings assistance of this type, they probably have evidence that their workers really need this help, and it would be useful if those who worked for them were aware of it.

The 2019 Retirement Confidence Survey suggests that poor communication about available financial education and help may be common. According to the survey, just a quarter of workers say they use their employer as a source of info, even though a majority say they would find workplace educational or financial wellbeing programs helpful.

I asked EBRI’s Financial Wellbeing Research Center members how they would recommend that employers communicate financial wellness initiatives effectively to employees.  They had a lot of ideas:

  1. Effective communication works in three directions: 1) top-down through executive support; 2) side-to-side with affinity groups and peer-to-peer; and 3) bottom-up with champions.
  2. Use technology to learn more about your work force, and target your communication based on what you learn.
  3. Meet employees where they are: generally speaking, electronic communication for tech-savvy workers or Millennials; group communication for Gen Xers and women; personal communication for Boomers and blue-collar workers.
  4. Treat your communication like marketing or advertisement: Use emotions such as humor to make it memorable, use repetition to make sure the message sinks in, and use multiple channels to have the message reach as many people as possible.
  5. Measure what is working and what is not working and adapt your communication strategy accordingly.

While EBRI’s recent Employer Financial Wellbeing Survey showed little consensus about what constitutes employee financial wellbeing, what approaches should be used, and even how success is measured, there can be no disagreement that to be effective, the programs need to be communicated. And by the way, we can all also probably agree that it is a good idea to hit the gym more than once every six weeks.

Additional Preventive Care Benefits Permitted Under High-Deductible Health Plans: A Game Changer?

EBRI Director of the Health Research and Education Program Paul Fronstin has been in the habit of saying — for many years now — that allowing additional preventive care benefits to be provided by high-deductible health plans (HDHPs) — such as insulin for diabetics — could be a game changer for the growth of such plans and similarly for health savings accounts (HSAs).

In a recent Issue Brief, Fronstin showed how growth in the number of HSAs and enrollment in HSA-eligible health plans appear to have been slowing. Examining data from EBRI/Greenwald & Associates, the National Center for Health Statistics, Kaiser Family Foundation, Mercer, and America’s Health Insurance Plans, Fronstin found that all of the surveys noted substantial growth in HSA-eligible health plan enrollment since HSAs were established in 2004. At the same time, the surveys also consistently found slower growth in HSA-eligible health plan enrollment more recently (since 2016).

Several factors may have been holding back growth in HSA-eligible health plan enrollments: the delay in the Cadillac tax, recent low health insurance premium increases, and low unemployment may have caused employers to hold off on plans to move to HSA-eligible health plans. In addition, research findings indicate that growth in HSA-eligible health plan enrollments may also be held back because what constitutes an HSA-eligible health plan does not provide employers their desired level of flexibility around the design of the health plan — specifically, the flexibility to provide benefits prior to when the minimum deductible for that year is satisfied.

gamechangerThat game changer may now be here. Last week, effective July 17, 2019, the U.S. Treasury Department and the Internal Revenue Service issued Notice 2019-45, which allows certain preventive care benefits to be permitted before an HDHP’s deductible is met. These include certain treatments not only for diabetes but for asthma, heart disease, hypertension, and other chronic conditions.

The 2018 EBRI/Greenwald & Associates Consumer Engagement in Health Care Survey supports the “game changer” theory.  According to that survey, HDHP enrollees are more likely to seek cost information than traditional plan enrollees and are more likely than traditional plan enrollees to exhibit cost-conscious behaviors. Specifically, HDHP survey respondents say that they have:

  • Checked whether the plan would cover care or medication (55 percent HDHP vs. 41 percent traditional).
  • Checked the quality rating of a doctor or hospital before receiving care (41 percent HDHP vs. 33 percent traditional).
  • Asked for a generic drug instead of a brand name (41 percent HDHP vs. 32 percent traditional).
  • Talked to their doctors about prescription options and costs (40 percent HDHP vs. 29 percent traditional).
  • Talked to their doctors about other treatment options and costs (37 percent HDHP vs. 31 percent traditional).
  • Asked a doctor to recommend less costly prescriptions (31 percent HDHP vs. 22 percent traditional).
  • Used an online cost-tracking tool provided by the health plan (25 percent HDHP vs. 14 percent traditional).

The Consumer Engagement in Health Care Survey further found that HDHP enrollees are more likely than traditional plan enrollees to report that they have major financial concerns, despite the fact that HDHP enrollees have higher incomes than traditional plan enrollees.  The report concludes that: “Concerns over the financial wellbeing of workers may be what’s holding employers back from adopting HDHPs more broadly.”

EBRI will continue to track the growth in HDHPs and in HSAs using its Consumer Engagement in Health Care Survey and its database of over 6 million HSAs to understand to what extent the new regulation truly is a game changer for such plans.

HSAs: The Convergence Between Health and Retirement

paul-fronstin-webBy Paul Fronstin, EBRI

The amount of money individuals may need to cover their health care expenses once they retire may be eye-opening for many of them. EBRI recently found that couples with long life expectancy and high prescription drug expenses could need as much as $363,000 to cover premiums and out-of-pocket expenses. Unlike in the past, the onus of saving for health care expenses in retirement has increasingly fallen on individuals as the number of employers offering retiree health benefits has dropped.

While most saving for retirement occurs in 401(k) and other defined contribution plans, in 2004, health savings accounts (HSAs) became another option for individuals. Unlike 401(k) plans, HSAs provide account owners a triple tax advantage. Contributions to an HSA reduce taxable income. Earnings on the assets in the HSA build up tax free. And distributions from the HSA for qualified expenses are not subject to taxation. Because of this triple tax preference, some individuals might find using an HSA as a savings vehicle for health care expenses in retirement more advantageous from a tax perspective than saving in a 401(k) plan or other retirement savings plan.

However, HSAs have some limitations when it comes to saving for health care expenses in retirement. First, compared with 401(k) plans, HSA contribution limits are relatively low. In 2019, workers with employee-only health coverage can contribute only $3,500, while those with family coverage can contribute $7,000. An additional annual $1,000 catch-up contribution can be made by those ages 55 and older. After 10 years, individuals can accumulate only about $68,000 if they have an annual rate of return of 7.5 percent. To the degree individuals take distributions from the HSA during their working years to pay their medical expenses because they have a high-deductible health plan, they will have that much less for health care in retirement.

According to the EBRI HSA Database, HSAs that were established in 2007 had an average balance of $8,384 at the end of 2017. Why was the average account balance so much lower than its $68,000 potential? Ninety percent of accounts established in 2007 took a distribution in 2017, only 10 percent of those accounts were investing their assets in something other than cash, and only 26 percent contributed the maximum amount allowed by law.

In the financial services marketplace, we are seeing a convergence between some of the largest HSA providers and retirement providers. In 2017, HealthEquity acquired 401(k) provider BenefitGuard, and Optum and Empower Retirement began integrating their HSA and 401(k) products. Fidelity already offers both 401(k) and HSA products. Fidelity found that individuals who contributed to both their HSA and 401(k) contributed an average of 9.9 percent, while those who contributed only to their 401(k) contributed 8.5 percent.

There is still a lot we do not know about the interaction between HSAs and 401(k) plans. How many individuals cut back on 401(k) contributions when they open an HSA? How many contribute the maximum to both accounts? And how does the presence of an HSA affect retirement income security? These are the kinds of questions we will be answering in the future as we explore the intersection between HSAs and 401(k) plans.

Listening and Learning: Student Loan Debt Is Weighing Heavily on Employees — and Employers

When I was a consultant, one of the things I liked best about my job was going to clients’ offices and hearing from them about the real-life issues they faced when it came to their employees. It helped me connect the dots in ways that simply looking at an organization’s defined contribution plan statistics never could. For example, it’s one debtthing to see the number of loans outstanding in a 401(k) plan and offer solutions to limit loan taking; it’s another to learn that the reason people are taking loans is because they are in dire financial straits that could result in the loss of their home.  With that information, you quickly realize that the problem isn’t the 401(k) plan design — it’s a true lack of financial wellbeing within an employee population.

EBRI has been conducting regional breakfast roundtables with employers, providers, consultants, and others across the country over the past few months, and we’ve learned a lot about what employers and their workers face today. We’ve visited San Francisco, Boston, New York, and Chicago, and plan to continue our tour throughout 2019. What we’ve learned has been essential in informing our recent research efforts.

Not surprisingly, many employers have been telling us that helping their employees with student loan debt is a key area of focus. And it is not all about altruism. In fact, according to EBRI’s Issue Brief, “How Employers Are Tackling Student Loan Debt: Evidence From the EBRI Employer Financial Wellbeing Survey,” employers are focusing on student loan debt primarily to improve employee retention — meaning it is a bottom-line issue. Employers tell stories of hiring and training employees only to have them leave for a slightly higher salary because they are so burdened by student loan debt. And it’s not just Millennials who are burdened. In “Student Loan Debt Trends and Employer Programs to Help,” Craig Copeland points out: “While the largest increases in student loan debt that occurred from 2001 to 2010 were for the youngest families, the largest increases are now starting to occur among those in the ages 35 to 44 and 45 to 54 cohorts.” In that same Issue Brief, Alex Smith of the City of Memphis explained that the average participant in the city’s student loan debt program is not in the millennial cohort at all, but 42 years old.

Employers further emphasize that the student loan debt burden is felt across pay levels. According to a report from The Aspen Institute’s Expanding Prosperity Impact Collaborative, borrowers with loans of $10,000 or less make up more than half of all defaults. However, I’ve also spoken with several employers whose workforce consisted of well-paid physicians with much greater student debt levels. They noted that despite the high pay, young physicians were struggling: they left medical school with an unmanageable debt burden that makes it challenging for them to buy a home and start a family. Several other employers asserted that when offering financial wellness initiatives, those likely to use them are not infrequently highly paid workers. These employers conclude that issues with financial instability, such as managing student loan debt, are often the result not of income level, but of spending patterns.

From my conversations, I learned that there is a lot of interest in healthcare company Abbott’s student loan debt assistance program. Abbott developed an initiative called Freedom 2 Save. It allows employees to receive a 401(k) matching contribution on money used to pay off student loans. In other words, Abbott’s program is geared to incentivize workers to accelerate their student loan debt payments while also helping them to amass savings in their 401(k) plan.

Abbott is not alone in innovating. The industry now offers a plethora of student loan debt assistance alternatives. In the “Student Loan Debt Trends and Employer Programs to Help” Issue Brief, Neil Lloyd, EBRI Research Chair and Head of US DC & Financial Wellness Research at Mercer, describes everything from debt assessment programs to debt consolidation services to refinancing solutions. Lloyd concludes in the Issue Brief that “there has been a great deal of innovation. This innovation has been the result of many employers starting pilot studies, to address the initial budget concerns, with a small group of employees to see whether it works with a small group and then expand out later. It minimizes the budget impact, but it also tests to see how successful the initiative is before a substantial commitment is made.”

This brings me to the bottom line of what employers have been telling us as we traverse the country with our benefits roundtables: they are struggling to find the right way to help employees tackle student loan debt, in part because it’s new territory, but also because their budgets are tight and they don’t have the data to make a strong business case to broadly roll out initiatives. This is borne out in the “How Employers Are Tackling Student Loan Debt Issue Brief: the most common way that employers engaging with employees on student loan debt say they are offering financial wellness solutions is via pilot programs (38 percent). And the most common challenge such employers face is complexity of the programs (48 percent) and challenges in making the business case to upper management (45 percent).

As I noted in a previous blog, EBRI is building a financial wellbeing database with the goal of assisting with exactly these issues. We are populating the database with participant-level data from employers offering financial wellness initiatives and from financial wellness providers. By mining this empirical data, we will seek to determine what initiatives are moving the dial on employees’ financial wellness in terms of better utilization of the 401(k) plan, lower employee turnover, improved financial skill, lower health care costs, and more.  This, in turn, can help employers sort through the available initiatives in order to find the ones that will work best for their employees’ needs and also make the case that offering financial help — such as student loan debt assistance — is more than a nice bell-and-whistle addition to available employee benefits, but instead something that can improve the work force and the employer’s bottom line.

We hope you join us when our roundtable comes to your area, and we also ask that employers and providers alike help us understand the return on investment of student loan debt programs by participating in our financial wellbeing database.

No Plan? Big Problem When It Comes to a Successful Retirement

planThree things jumped out at me when I saw the new results from EBRI’s Retirement Security Projection Model® (RSPM) showing that more American workers are on track to have a successful retirement — or at least one where they won’t run short of money: one, that’s good news; two, a lot of people are still not on track for a financially secure retirement; and three, even those that are on track are not guaranteed a “successful” retirement, as retirement is not just about money.

According to EBRI’s model, 59.4 percent of American households between the ages of 35 and 64 are projected to have sufficient money in retirement so that they won’t run short — meaning their aggregate resources in retirement will cover average retirement expenses as captured in the Consumer Expenditure Survey, as well as medical expenses such as nursing-home and home-health care. That is good news, and future analysis by EBRI will examine the driving forces behind this positive development.

At the same time, the finding also means that 40.6 percent of American households are not on track for a financially successful retirement. Many probably assume they will just work longer. That may be unlikely: according to the 2018 Retirement Confidence Survey, while the median worker believes he or she will retire at age 65, in reality, the median retiree left the work force at age 62. Further, while nearly a third of workers believe they will retire at 70 or older, only 7 percent of retirees actually did so.

The Society of Actuaries’ Committee on Post-Retirement Needs & Risks’ report on The Decision to Retire and Post-Retirement Financial Strategies provides sobering insights into why this is so. In a series of eight focus groups, people who voluntarily left the work force within approximately the past decade were asked a series of questions about retirement, including why they had retired.

A key finding was: “Even though retirement was voluntary, most of the participants retired in response to health issues, challenges in their workplace, or the need for family caregiving.” The quotes from focus group participants describe feelings of frustration with the workplace, weariness, inability to work due to physical limitations, lack of opportunities, and family obligations. To quote just one of the focus group participants: “I wanted to work until I was 65. But, my husband just passed about a year and a half ago. When he really got to the point, where I figured I needed to be there with him, I just cut it off at 62.”

Likewise, the prospects for working in retirement are also somewhat grim: while 4 in 5 workers expect to work for pay after retiring, just 1 in 3 retirees actually reported that they did so. Clearly a reality check is in order for those who simply believe continued work is a reasonable alternative to preparing for retirement.

But even those with the financial means to retire may not be as prepared as they think. According to the Retirement Confidence Survey, fewer than half of workers have thought about how they will occupy their time in retirement. In her article “Reboot, Rewire or Retire? Personal Experiences With Phased Retirement and Managing A Life Portfolio,” actuary Anna Rappaport  talks about her experiences since retiring in 2004, sharing how important it is to plan the way you will spend your time and noting: “One cannot be on vacation all of the time. Vacation is a break from what we normally do. People who retire with the idea of an endless vacation are likely to be disappointed or bored within a year or two, if not sooner.” Instead, Rappaport described a successful, happy retirement as a life portfolio consisting of four key elements that have been carefully thought through and maintained:

  • Health: including activities to maintain health and a support system.
  • People: family, friends, community organizations, and maintaining and making new contacts.
  • Pursuits: work, volunteering, hobbies, community activities, caregiving, travel, and other activities that take time and provide satisfaction.
  • Places: home, travel, and community.

Rappaport concludes that “each of us should have a life portfolio as well as a financial portfolio. Just as a financial portfolio requires focus, diversification, and management, so does a life portfolio. However, the strategies that make sense for the life portfolio are very individual, and there are few established tracks for defining and managing a life portfolio.”

The key here for both the financial and lifestyle aspects of retirement is planning. Yet the Retirement Confidence Survey shows that only 4 in 10 workers have tried to figure out how much money they will need to live comfortably in retirement.  Join EBRI’s American Savings Education Council on April 30 to hear the results from the 2019 Retirement Confidence Survey as well as the latest tools, information, education, and services that government agencies are making available to American workers and retirees to help them do a better job with the planning process as well as managing their finances.

EBRI’s “Undoing Project”


Michael Lewis’ The Undoing Project artfully documents how psychologists Daniel Kahneman and Amos Tversky applied their unique ability to create behavioral experiments that resulted in monumental breakthroughs in understanding why people act the way they do. This, of course, led to the new and game-changing discipline of behavioral finance.

So EBRI has been engaged in its own Undoing Project by applying its strengths over the past year — its ability to create databases and the unparalleled skill of its researchers in mining these databases — to an emerging and increasingly popular area of employee benefits: overall financial wellness.

This is important work. As we start 2019, the role of financial wellness as an employee benefit seems poised at a crucial juncture. According to EBRI’s 2018 Employer Financial Wellbeing Survey, 3 in 4 HR professionals expressed some level of interest in financial wellness programs for their employees, with top reasons given for offering such programs being improved overall worker satisfaction, reduced employee stress, and improved employee retention. At the same time, employers are baffled by how to navigate the myriad of initiatives available to them. According to same survey, employers struggle with the complexity of financial wellness programs, often citing the myriad of moving pieces that typically constitute them. They note they lack staff resources to coordinate and market the benefits, which in turn are often underutilized by employees. Employers also say they are challenged in making the business case for financial wellness initiatives and struggle to quantify the value added of the programs. In a focus group of employers conducted by EBRI last year, one employer summed up the latter challenge concisely, declaring that while he could spend millions of dollars on an employer matching contribution for the 401(k) plan, he couldn’t effectively make the case for a $10,000 investment in financial wellness initiatives.

The sheer number of providers — many of them startups — can be daunting. One vendor noted that he’d counted 300 firms with offerings they purported to meet the definition of financial wellness initiative. Indeed, the designation “financial wellness solution” ranges quite widely: in EBRI’s survey, it included student loan debt help, bank-at-work partnerships, debt management services, and financial counseling. What constitutes emergency fund assistance is a good example of how wide a net is being cast when it comes to classifying initiatives as falling under the label of financial wellness. In EBRI’s survey, emergency assistance included 401(k) and 403(b) hardship loans, natural disaster funds, and low-interest loans. The wide breadth of employee financial wellness providers leaves employers wondering how they should even characterize what they are trying to achieve.

Measurement is an important tool — both in terms of quantifying the need for financial wellness initiatives and their impact. Regarding the former, some leading-edge employers are doing a considerable amount of work in that area. In a focus group that EBRI conducted last year, one employer explained a rather sophisticated financial wellbeing score they had devised to quantify the bottom-line impact of financial stress. “High” financial stress was defined as an employee with a significant financial issue such as a hardship withdrawal in their 401(k) plan or a wage garnishment on file. Likewise, employees with multiple minor financial issues, such as not saving in or taking a loan from the 401(k) plan, were also placed in the “high” financial stress category. On the other end of the spectrum, “low” financial stress was assumed when there were no financial issues indicated in any of the data. The employer then parsed out claims data, absenteeism, and performance ratings of employees by financial stress level. At the end of the day, the employer was able to show that high financial stress among employees had a bottom-line impact in terms of these measures — thus justifying the resources and out-of-pocket expenses used to seek to improve financial wellbeing among employees. Still, according to EBRI’s survey, only 14 percent of employers are connecting the dots on financial wellness and its bottom-line impact by creating a financial wellbeing score or metric as described above.

Quantifying how financial wellness initiatives move the dial is arguably the flip side of the measurement coin. If an employer can show that financial stress is linked to higher employee turnover, for example, it can in turn seek to demonstrate how the financial wellness initiatives put in place reduce such turnover. According to EBRI’s survey, the most critical measure of success for employers’ financial wellness initiatives is improving overall worker satisfaction, followed by reduced employee financial stress. Going back to the employer in EBRI’s focus group that developed a financial wellbeing metric, key measures of financial stress came right from 401(k) data: hardship withdrawals, loans, and plan participation. Clearly this type of data is far more accessible than credit scores, for example, and it arguably can provide an indicator of overall financial health. Like the canary in the coal mine, the presence of poor retirement savings behaviors can signal that something is amiss with an employee’s overall financial picture. At a minimum, they may point to a low level of financial skill.

This is where EBRI’s Undoing Project comes in. EBRI is fortunate in having decades of experience in developing and mining retirement and health benefits data. Leveraging this experience, in 2018, EBRI undertook its initial steps in creating a financial wellness database that it will mine to help employers, policymakers, and the industry better understand how financial wellness initiatives move the dial on employee financial wellbeing. We’ll ask questions such as whether interventions around student loan debt, emergency savings, and overall financial counseling, for example, change 401(k) behaviors. Over time, our goal will be to demonstrate links to overall wellbeing by tying in claims data as well.

Like the financial wellness industry itself, EBRI is broadly defining the types of initiatives that fit into its database with a view to being as comprehensive as possible. And, consistent with our mission, EBRI’s analysis will be objective and unbiased — our sole consideration will be to provide an assessment of how financial wellness initiatives are moving the dial on employee financial wellbeing.

We at EBRI are excited about our journey and ask others to join us. EBRI’s Financial Wellbeing Research Center consists of providers, plan sponsors, government agencies, and associations interested in better understanding the financial wellness landscape. For more information, email info@ebri.org.

The Tortuous History of HRAs: What Does the Future Hold?

paul-fronstin-webBy Paul Fronstin, EBRI

In October 2018, regulations were issued by the departments of Treasury, Labor, and Health and Human Services — at the direction of an Executive Order by President Trump — to expand the use of stand-alone Health Reimbursement Arrangements (HRAs) by employers of all sizes.

This is another twist in the complicated history of HRAs.

HRAs first became available around 2001, when a handful of employers paired such arrangements with high-deductible health plans.  These employers offered HRAs under then-existing law — which was unclear at the time.  In 2002, the Internal Revenue Service (IRS) released Revenue Ruling 2002-41 and Notice 2002-45 (published in Internal Revenue Bulletin 2002-28, dated July 15, 2002) to provide guidance clarifying the conditions under which HRAs could be provided to workers on a tax free basis, and addressed questions related to the benefits offered under an HRA, the interaction between HRAs and cafeteria plans, FSAs, COBRA coverage, and other matters.  One of the provisions in Notice 2002-45 allowed HRAs to be used on a stand-alone basis to reimburse workers for eligible health insurance premiums, which included premiums for health insurance purchased by workers directly from insurance companies in the individual or non-group market.

Employers never made this provision widely available and, in 2013, the Obama Administration banned the practice in the Department of Labor Technical Release No. 2013-03.

Then in December 2016, the 21st Century Cures Act included a provision known as the Qualified Small Employer Health Reimbursement Arrangement (QSEHRA), which allows certain small employers to use HRAs on a tax-preferred basis to reimburse workers for health insurance purchased on the individual market, as well as deductibles, and cost-sharing more generally.   A year later, President Trump issued his executive order.

Under the newly-proposed regulations, two types of HRAs would be allowed.

  1. A stand-alone HRA that could be used to purchase coverage in the non-group market, with no contribution limit. The HRA must be used to purchase ACA-compliant plans and must meet ACA affordability requirements in order for the employer to meet the shared responsibility requirement.  The HRA will not be subject to ERISA if certain conditions are met.
  2. An “excepted benefit HRA,” where employers would be able to contribute up to $1,800 that workers could use to pay their out-of-pocket cost sharing and/or certain premiums, such as those for short-term health insurance, COBRA, disability insurance, and dental and vision insurance.  When offering an excepted benefit HRA, employers must also offer a group health plan, but workers could decline it and get coverage in the non-group market.  Employers are not allowed to offer both the stand-alone HRA and excepted benefit HRA to the same class of workers.

The administration expects around 800,000 employers will offer stand-alone HRAs by 2024 and beyond.  As a result, some 10.7 million individuals would be covered by such an HRA by 2027 and 6.8 million fewer workers (and their dependents) would have traditional employment-based health coverage.  It is no surprise that there would be fewer people with employment-based health coverage.  Employers have been interested in the concept of “defined contribution (DC) health” coverage and giving workers an HRA that they can use to purchase coverage in the non-group market may be an attractive means of moving to DC health.  Employers never moved in the direction of giving workers a fixed contribution to purchase health insurance for a number of reasons.  Historically, they were hesitant to drop group coverage in favor of offering individual policies because the non-group market was not considered a viable alternative to the employment-based system.  And, more recently, even with the advent of private health insurance exchanges, employers did not embrace them as the initial hype would have expected us to believe.

There is no question that the HRA provision gives employers the means to drop traditional health coverage and go to a “DC health”-type plan.  One of the concerns is that employers will try to structure their plans in such a way to send high-risk employees to the individual market.  The regulations include a number of provisions to prohibit such a discriminatory practice.  However, what if only employers facing the highest premiums in the group market adopted HRAs?   If such a phenomenon occurred, the non-group market would not become more stable, and may see average premiums increase, which the group market would see a reduction in average premiums as higher risk groups left.

Employers may require that there be a viable non-group market for their employees to go to before moving to HRAs.  Stability in premiums may be one requirement, which may make it less likely that multi-state employers move to HRAs given the variation in premium growth across states.  The quality of the benefits offered is another consideration.  For instance, the prevalence of narrow network plans in the non-group market may be something that continues to hold employers back from HRAs.  And of course there is always the uncertainty of future changes in the non-group market, as employers have no control over that marketplace and would have no control over how workers spent HRAs in the non-group market.

There are a number of unanswered questions.  Which employers would go in this direction, under what circumstances, and for which employees?  Would it vary by firm size?  Do the strength of the economy and labor market conditions factor in?  The next recession will be the first recession in history since the insurance market reforms were put into place by the ACA.  It will be the first time in history that a recession was paired with the inability of insurance companies to deny people coverage for pre-existing conditions or to charge them more for such conditions.  It will also be the first time that health insurance premiums for people under 400 percent of the federal poverty level would be subsidized by the federal government during a recession in a meaningful way.  Employers may decide that they no longer need to offer health benefits to be competitive in the labor market during the next recession, and the combination of the insurance market reforms and the ability to give workers tax-free money to purchase health insurance on their own may finally put the future of employment-based health coverage to the test.

The new regulations are expected to be finalized early next year and take effect for plan years beginning on or after Jan. 1, 2020.