A new hire opts out of the company’s 401(k) plan to repay his student loans. During annual enrollment, a mid-career employee with a chronic health issue lowers her retirement savings contribution so she can direct more money to her health savings account to pay for upcoming medical expenses.
These are just two examples of how employees might, if given the option, balance immediate financial burdens with long-term financial goals.
And now with recent developments, companies are unlocking new ways to actively support their employees’ financial wellbeing in both the short- and long-term. A great illustration of this is the Private Letter Ruling (PLR) its one of our clients recently secured from the Internal Revenue Service (IRS), marking a milestone in the evolution of personalized benefits. Because of the PLR, its Defined Contribution (DC) plan now gives employees more freedom to choose for themselves whether their employer’s non-elective retirement contributions are directed toward retirement saving, student loan payments or health savings accounts.
Imagine what this new form of DC plan now offers: younger employees can, for example, lessen their student loan debt and then, a few years later, shift more money towards preparing for retirement. Importantly, employees are not locked into a one-time choice; they can change their allocation decisions each year during open enrollment as their needs change. And all of these choices are designed such that there are no tax consequences to the employee.
Employees know they aren’t saving enough money for retirement. Study after study shows that. But immediate, day-to-day financial obligations (including medical care costs and higher education expenses) get in the way.
Nearly nine in 10 U.S. respondents to WTW’s 2024 Global Benefits Attitudes Survey are worried about paying for necessities. Three out of 10 respondents say they are worse off financially than they were a year ago.
Despite that stark reality, there’s a disconnect between what employees and employers prioritize. While employers have focused on physical and emotional wellbeing, almost 60% of employees say financial wellbeing is the most important area where they would like their employer to help them in the next three years. Given that each employee’s financial wellness is an extremely personal and complex issue, it can be difficult for an employer to know how to address flexible benefits from a system-wide perspective.
Rewarding smart means designing DC plans that offer the choice and flexibility required to meet diverse needs. It’s worth getting right because benefits are often a deciding factor in attracting and retaining talent. In fact, two-thirds of North American workers report that the value of benefits figures into their decision to work for a company; and since 2017, there’s been a 50% increase in the importance of benefits as a reason to take a job. Similarly, 58% of North American employees say their benefits package is critical to remaining with their current employer, as compared to 48% in 2017.
SECURE Act 2.0 paved the way for more flexible benefits by allowing 401(k) contributions to match student loan payments. The PLR that our client received is another big step forward that other organizations can learn from. And these are not the only options available — there are more possibilities than ever for companies to deliver meaningful rewards that support employee financial wellness.
Today’s workforce contains five generations, and that diversity presents a challenge to a “one size fits all” total rewards approach. Just as one universal benefit doesn’t fulfill the needs of every employee, no single solution will suit every employer.
As you embark on this next evolution of benefits choice and flexibility, keep these steps in mind:
Now that one employer has taken its ideas about flexibility in DC plans from discussion to development, expect other companies to follow suit and find creative ways to introduce flexibility into their total rewards and work through regulatory hurdles. Such innovation is also likely, in the long-term, to inform future benefits legislation.
Employers that invest the time and effort now in the pursuit of employee-centered solutions can gain a competitive advantage in attracting and retaining talent. After all, forward-thinking companies tend to attract like-minded employees.
Breakthrough program allows employees to address a range of financial worries.
The three-year programme will apply war-gaming and scenario planning to test the vulnerability of organisations to changing geopolitical drivers of risk, identify their insurance gaps and improve resilience.
