Financial Wellness: The Impact on Employee Health & Your Organization

April 25th, 2018

By Pari Luna and Brian Whinnery, Hays Companies

Over the years, more and more data has demonstrated a clear link between an employee’s physical and financial health. Consider the following:

70 percent of Americans live paycheck to paycheck [1]
84 percent of employees reported they have some degree of financial stress [1]
24 percent of people who have financial stress also have higher healthcare costs[2]

Individuals living with financial stress are more likely to suffer from chronic ailments, such as fatigue, depression and headaches, in addition to the health behaviors that are most strongly affected by financial stress, such as sleep, hygiene, nutrition, exercise and stress management.  As there is such an intertwined relationship between our physical and financial health, it can be difficult at times to determine causation.

Moreover, in a professional sphere, financial stress typically results in lower productivity at work and a higher use of sick time, even when the individual isn’t ill. Recent studies indicate that the combined cost of these financial stress losses can cost an employer $413 per employee per year.

These are among the evident reasons for strategically expanding cohesive wellness and financial programs into a business’s overall benefit program, with preparing for retirement and reduction of healthcare costs as the ultimate goal. By taking a holistic approach to physical and financial wellness, employers are able to promote a higher quality of life. This in turn results in employees who are more productive and effective.

At Hays Companies, we have developed an integrated three-pronged financial retirement approach, which is driven by the desire to create a culture of wellness that improves employees’ health and retirement readiness.

Here is a snapshot into our consultative process:

  1. When all employees are automatically enrolled in a well-designed 401k program at a certain level (typically 3 or 6 percent), roughly 90 percent of people will remain enrolled. However, if you do not have auto enrollment, only about 70 percent will opt-in. Studies examining participation levels of opt-in and opt-out programs have shown that people who are auto enrolled in a program are more likely to stay there, rather than opting out and investigating retirement investment alternatives.

A 401k strategy that incorporates automatic enrollment is positively correlated with health improvements, As Timothy Gubler identified in “Healthy, Wealthy, and Wise” [3], retirement contribution habits are highly associated with health improvements. Essentially, those who invest in their retirement through a 401K improved their health factors by 27% as opposed to those who did not contribute. By assuring employees that their investment is being well-managed, they are liberated from the worry and uncertainty that is tied to many investment decisions.

  1. Boost 401k contribution levels by adding an automatic increase feature into the retirement program. With automatic increases, an employee’s deferral contribution increases a little each year until the employee reaches 10 percent.

To put the correlation of financial wellness into perspective, in a survey of American adults and their goal-setting habits, 80% of those surveyed set annual resolutions related to their physical health, while 69% set financial goals.  Those who reported satisfaction with their current financial condition fared better at achieving their health resolution.

By increasing an individual’s contribution to their financial future in a manageable fashion, the employee has the opportunity to learn that other financial goals can be achieved in a similar manner. In turn, they may see the value in using a similar approach in their wellness goals.

  1. With automatic investment, employee contributions are enrolled in investment models that match an employee’s risk level with his or her proximity to retirement. Only about 10 percent of people will want to make changes to their 401k investment model, while the remaining 90 percent will stay with the model assigned to them. This is done with the knowledge of the model shift from aggressive to more conservative as retirement approaches.

There is a close association between retirement contribution habits and health improvements. Employer contributions to a 401k can reduce present and future healthcare costs, while employees can benefit from increased financial wellbeing and retirement readiness.

This three-pronged approach—automatic enrollment, automatic increase, and automatic investment—sets a secure baseline to prepare employees for the future. For example, to reach full income replacement in retirement, employees will have to invest an equivalent of 10 to 15 percent of their salaries into a 401k plan. Our approach emphasizes financial fitness as a sustainable practice to achieve the long term goal of receiving the highest return on their investment.

Financial planning and employee wellness both benefit from employer support, with our practical, three-pronged strategy ensuring a healthier, happier, and more productive workforce while companies benefit from lower health-related costs. That’s a true win-win situation for everyone.

If you are interested in learning more, please contact Hays Financial Group Vice President Brian Whinnery at bwhinnery@hayscompanies.com or Pari Luna, Director of Health Strategies, Minneapolis at pluna@hayscompanies.com.

About the authors:

Pari Luna is Director of Health Strategies at Hays Companies, Minneapolis. Brian Whinnery, AIF, Vice President and Senior Financial Advisor at Hays Companies in Minneapolis.

Sources:

[1] Financial Finesse 2013 Financial Stress Report
[2] Higher Health Care Costs for Metabolic Syndrome Risk, Disabled World, 2010
[3] Healthy, Wealthy, and Wise. Timothy Gubler, Lamar PierceOlin Business School, Washington University in St. Louis (10.1177/0956797614540467)