Bank of America Merrill Lynch Study Finds Workplace Benefits Integral to Company Performance and Vital to Employees' Lifelong Financial Security
Bank of America Merrill Lynch today announced findings from its 2012 Workplace Benefits Report, an annual study of the increasingly significant role financial benefit plans play in employers' talent management strategies and in the overall financial wellness of their employees. The scope of the research was expanded this year to examine both employer and employee perspectives on the evolution, availability and usefulness of workplace benefits – from 401(k) plans and health savings accounts (HSA) to financial advice and education. Key findings include:
- Financial benefits are more important to new hires today than five years ago.
- Employer concern for employees' long-term financial security drives benefit decisions.
- Workers are largely on their own when it comes to transitioning into retirement.
- Demand for personalized financial advice in the workplace is on the rise.
- Greater understanding of their benefits increases employee engagement with and appreciation for these plans and improves outcomes.
“Our country's retirement system is facing a great deal of scrutiny,” said Kevin Crain, head of Institutional Retirement and Benefit Services for Bank of America Merrill Lynch. “Corporate benefit leaders and the retirement services industry must work together to continuously improve and protect the health and vibrancy of this system and of the financial lives of the employees participating in it.”
Financial benefits play a key role in employers' talent management strategies
The study found that nine out of 10 employers believe that financial benefits are equally or more important to potential hires today than five years ago – with half believing such benefits to be more important than ever. Confirming this, nearly 80 percent of employees view these benefits as a key factor when considering and accepting a new position.
Companies of all sizes also recognize the need to offer competitive financial benefits to retain talented people and stem employee turnover costs (84 percent), from losses in productivity and sales to the high cost of recruitment and training. Encouragingly, the survey found most employers today (81 percent) make financial benefit plans available to employees as part of their company's core values.
“Benefits should be viewed as one of the most important investments a company makes to optimize employee performance, provide opportunities for them to succeed financially and gain sustainable competitive advantage,” added Crain. “A company culture known for making investments in their employees' financial wellness, in addition to their professional growth, will attract top talent and foster a more productive and loyal workforce, more deeply invested in the company's success.”
When selecting financial benefit plans and designing wellness programs, employers place the greatest importance on a plan's usefulness to employees (88 percent), the quality of service their employees will receive (86 percent), and a plan's cost (80 percent). The flexibility of the plan to support a demographically diverse workforce is also an important consideration (72 percent).
Helping employees achieve long-term financial security
Ninety-one percent of employees surveyed view their 401(k) plan as one of the most critical savings vehicles on their path to a financially secure retirement. Considering this, nearly half (46 percent) of employers expressed concern over the possibility of a policy change that could reduce retirement savings tax incentives for employees participating in these plans.
According to last year's study, coming out of the recession, the majority of employers felt an increased sense of responsibility for the financial future of their employees. This was true again this year, with our 2012 study finding concern for employee financial wellness to be the number one reason employers offer financial benefit plans (91 percent).
For most employees, achieving financial wellness is increasingly tied to addressing the rising cost of health care and preparing for retirement income needs, as well as balancing competing financial demands throughout their lifetime. Although employers have made strides in recent years to help put employees in a better position to achieve financial wellness, this study reveals a need for greater focus on retirement readiness and future health care expenses.
Nearly 70 percent of employers feel some sense of responsibility for helping employees secure the assets needed to sustain them later in life. However, workers nearing or in late stages of their career often find themselves on their own when it comes to transitioning into retirement. For example, just 39 percent of employers offer their retiring employees guidance on what to do with their 401(k) assets, while only 20 percent help educate employees on such issues as preparing for future health care costs or understanding when to take Social Security as they approach traditional retirement age.
This may be in part the reason why less than half (42 percent) of employees surveyed feel they are on track to financially support their desired lifestyle in retirement, and another 22 percent have no idea whether they're on track to do so or not. This lack of confidence may be one reason why 73 percent of all employees surveyed see themselves working into their 70s.
When asked about the desire for a guaranteed source of income during retirement, 82 percent of employees would be willing to give up 5 percent or more of their salary if it meant having reliable income to help them live comfortably during their later years; 42 percent would be willing to give up 10 percent or more of their salary.
“There is an opportunity today for employers to differentiate themselves by filling a major gap in helping employees, particularly older workers, prepare for and transition into retirement,” said Steve Ulian, head of Institutional Relationship Management for Bank of America Merrill Lynch. “To keep up with employee expectations, we see employers moving toward more flexible benefit programs that offer an opportunity to deliver greater value and more effectively address the longer term financial security of their employees.”
Maximizing health and wealth benefits
When asked what would encourage them to contribute more into their 401(k) account, employees cited an increase in company match (89 percent); more affordable health care benefits (73 percent); greater access to education and advice about saving and investing in the plan (53 percent); and a higher maximum contribution limit (46 percent).
Among employees surveyed, 84 percent cited that their employer currently matches some level of 401(k) plan contributions. The study also found that, last year, one-third (33 percent) of employers reinstated or raised their company match, whereas just 8 percent eliminated or lowered their match – another indication perhaps that economic conditions are improving.
Another savings vehicle more than half (57 percent) of employees view as important to their financial security is a health savings account (HSA). According to a health insurance industry trade association, the number of people enrolled in HSAs and high-deductible health plans has more than doubled since 2008, with an estimated 13.5 million people using them today1. Our 2012 survey found that 30 percent of companies now offer an HSA option to their employees, among whom 35 percent participate in this tax-advantaged savings vehicle.
“Our research finds that most employees are realistic in their view that health care costs – throughout what for many will be a longer life than previous generations – will be one of their most significant expenses later in life,” said Bob Kaiser, head of Health Savings for Bank of America Merrill Lynch. “In fact, they believe these costs will likely exceed portions of their budget needed for both housing and recreation during retirement. By engaging multiple tax-advantaged saving vehicles in the workplace, individuals may have a greater ability to amass the assets they'll need to help cover these future expenses.”
Demand for personalized advice is on the rise
The study has previously shown that the majority (79 percent) of employers anticipate greater demand among employees for saving and investment advice surrounding their benefit plans and broader financial lives. In light of this, it was not surprising to find in this year's study that 56 percent of companies now offer access to professional financial advice in the workplace.
Among employees without access to professional advice, half would like their employer to offer it. Among all employees surveyed, 43 percent indicate that the availability of financial education and advice services at work increases their loyalty to their company. Areas of their financial life in which employees are most seeking advice include investing in their 401(k) plan (45 percent); preparing for retirement (44 percent); budgeting for current (40 percent) and future (33 percent) health care expenses; and maximizing their company stock and equity plans (42 percent).
Ulian adds, “Offering employees access to meaningful advice and education tailored to their life stage and personal situation can help them to take greater control of their financial lives. This has also shown to increase ongoing employee utilization of and appreciation for such benefits.”
Lack of communication limits employee awareness and satisfaction
More than half (55 percent) of employers only communicate with employees about their financial benefit plans once a year, or less. This may be one of the reasons why 30 percent of employees feel they are not taking full advantage of these benefits. When asked why, several employees pointed to not knowing how to optimize their benefits (35 percent) or even what benefits their company offers (10 percent). This lack of communication may also be a factor contributing to nearly half (48 percent) of employees being less than satisfied with the benefits offered to them.
Employers and employees agree that companies could do a better job of communicating the broad advantages of their financial benefit plans. Similar to the views of employees, most employers admit more can be done to improve communications and help workers understand the benefits they offer, including:
Discussing the broader advantages of each benefit plan (80 percent).
Providing access to financial professionals for advice (79 percent).
Increasing the number of communication methods (69 percent).
Increasing the frequency of communications (66 percent).
Targeting communications to specific employees (63 percent).
“The challenge for employers is to communicate, in the clearest, most targeted and compelling ways, the advantages that their benefits offer and how to engage with these plans to achieve the best possible outcomes,” said Crain. “HR leaders who embrace communications and effectively leverage their financial benefit plans within broader talent management strategies, can gain a more loyal and empowered workforce, and competitive advantage in the global marketplace.”
1America's Health Insurance Plans (AHIP), Center for Policy and Research (May 2012)
Workplace Benefits Report Methodology
Boston Research Group interviewed a national sample of 1,000 employers through a phone survey and 1,000 employees through an Internet survey from January 2012 through March 2012 on behalf of Bank of America Merrill Lynch. To qualify for the survey, employers must currently offer their employees an active 401(k) plan and the final sample was weighted to representative proportions based on plan size. Similarly, employees had to be enrolled in a 401(k) plan to participate.
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