By Jeanne J. Fisher
“I’m tired, sore and tense.”
“My job overwhelms me.”
“I’m snapping at my family.”
“I’m burnt out.”
These common complaints have become the butt of many memes shared around social media, with several people chiming in “this is sooooo me!”
Chronic stress is the result of suffering from emotional pressure for prolonged periods of time, and our bodies have a very real biological response to it. When we feel threatened, our nervous system releases a flood of hormones, our blood pressure rises, and our muscles tighten. All of this is to prepare us for emergency action, often referred to as fight or flight.
Unfortunately, chronic stress is prolonged. Unlike an acute stress event – a near car accident – events that provoke chronic stress don’t exactly have an end or a resolution. Our bodies never get the opportunity to expend the extra energy, causing a constant state of cyclical adrenalin rush. Hence the reason individuals dealing with chronic stress often feel ‘burnt out.’
A recent study from Varo Money found that 30% of Americans are “constantly’” stressed about money. This is no surprise as three out of four Americans live paycheck-to-paycheck, and nearly 60% of Americans couldn’t cover a $500 expense.
The increasing debt load we carry (credit card, automobile and student loan debt being the most notorious culprits) is certainly a catalyst for our money concerns and inability to manage short-term expenses. Personal debt may not seem like a business related issue, but many employers, and more specifically human resource departments, are leading the charge of financial wellness through initiatives and resources for employees struggling with debt.
Student Loan Repayment Programs
According to the website Student Loan Hero, 44 million borrowers owe a collective $1.5 trillion in student debt. This averages out to nearly $50,000 per individual! Employers recognize that younger generations care far more about their immediate burden of student debt rather than long-term benefits. As such, Student Loan Repayment Programs (SLRPs) are becoming an attractive and impactful benefit for a younger workforce.
The beauty of this benefit is its flexibility. SLRPs are not subject to stringent ERISA requirements, and you can customize the program to meet your company’s needs. You can determine who is eligible, how much the benefit is, and even tie performance goals to the benefit.
Most SLRP programs today are paid after-tax, meaning that any benefit paid is taxable to the employee. However, a private letter ruling (PLR) issued by the IRS last year allowed a company to make a match into the company’s retirement plan if the employee showed proof of monthly student loan payments. While PLRs are specific to a company, and should never be taken generally, this is a clear step the IRS is open to linking SLRPs into existing tax-advantaged benefits.
Health Savings Account Education
According to a CNBC report, the number one cause of bankruptcy and hardship withdrawals from 401(k)s is medical debt. High-deductible health plans are on the rise and many Americans are adopting them for the lower monthly premiums. Unfortunately, health care in the U.S. is also expensive and people are underestimating the high deductible.
The HSA is specifically designed for individuals to save for medical emergencies in a tax-efficient way, and to accommodate the higher-deductible. While HSA usage is on the rise, most American’s still can’t correctly explain how the benefit works. Merrill Lynch’s Annual Workplace Benefits Report found that 76% of employees say they understand how an HSA works, but only 12% could accurately describe them.
Benefits departments should take time to educate employees on the HSA and strongly encourage participation. Employees should save enough in their account to cover their annual deductible, and once the cash minimum is met, account holders may be able to invest the funds for tax-deferred long-term growth.
Retirement Plan Loans
In many ways, the ability to take a loan from your 401(k) can be a good thing. But more often than not, loans are abused and misunderstood. Yes, it is a positive that you are borrowing from yourself and paying back interest. Unfortunately, taking a loan from your 401(k) leads to future bad habits. Once you take a 401(k) loan, you now have another debt payment automatically being taken from your paycheck. Because of this, Fidelity estimates 15% of borrowers stop making additional contributions immediately and 20% decrease their contribution in the first year. In our experience, borrowers tend to be repeat offenders, continuing a cycle of poor money management and “robbing Peter to pay Paul.”
Every 401k plan is required to allow for hardship distributions. Hardships allow a participant to make a distribution from their account, while employed, for things like a medical emergency, eviction or foreclosure on your home, funeral expenses, etc. For the most part, anyone suffering a real financial hardship will have access to their 401k. Given this, we recommend benefits departments help their participants make better financial decisions by not allowing 401k loans in the plan. At the very least, educating their employees regarding the pros and cons of borrowing from their retirement.
Financial Wellness Programs
Unfortunately, many employees in today’s workforce are increasingly concerned about short-term financial issues like budgeting and paying down debt. In addition, we see that more and more Americans’ wealth is tied up in their workplace plans. Thus, employers are best positioned to provide the type of financial education employees desperately need.
Independent companies and 401(k) advisors partner with businesses to provide targeted educational workshops. These informative presentations should be based on specific topics to fit their employees’ wants and needs. Whether its basic financial education or retirement planning, focused presentations are a great way to engage employees and ensure they can receive the crucial financial advice to help them meet their goals.
Unfortunately, many employees don’t have access to meet individually with financial advisors. In our experience, employers who provide this essential benefit see employees move out of financial struggle and into financial success. Individuals who are “financially fit” are not weighed down by the stress of their debt, and instead can focus on their long-term financial objectives.
No, we don’t expect employers to solve the debt crisis we face. But providing some key benefits to employees can relieve financial stress and make all the difference in a person’s life.
ARGI Financial Group JeanneFisher@argi.net
www.argi.net
Respective services provided by ARGI Investment Services, LLC, a Registered Investment Advisor, ARGI CPAs & Advisors, PLLC, ARGI Business Services, LLC, and Advisor Insurance Solutions. All are affiliates of ARGI Financial Group.