2016 Workplace Benefits Report

Transcription

1 RETIREMENT & BENEFIT PLAN SERVICES 2016 Workplace Benefits Report Empowering and encouraging employees to plan for their financial futures For plan sponsor use only.

2 Empowering financial wellness, one habit at a time We at Bank of America Merrill Lynch are committed to delivering financial wellness solutions for our clients, and their employees. This Workplace Benefits Report the second to focus on employees highlights the urgency of this effort. It shows clearly that employees need education and guidance to build more secure financial lives, and that employers have an opportunity to play a critical role in helping them. Our survey finds that employees have lost confidence in their financial well-being during the past two years.* Across all ages and income levels, employees cite a wide range of challenges that impede their ability to build financial security, including rising health care costs, high debt levels and the need to manage many competing financial priorities. Employees want and need help, and they are looking to employers to provide it. Employers have a chance to provide much-needed leadership on employee financial wellness. We are partnering closely with them in that effort. Offering a holistic range of benefits, education, and support, as part of a comprehensive financial wellness program bringing together employees entire financial lives, has the potential to help employees strengthen their financial security and to help companies become employers of choice. We are uniquely positioned to support employees financial needs, to integrate benefits for easier employee access and use, and to implement financial wellness programs. The insights revealed by this Workplace Benefits Report represent another step forward in our mission. We re excited to share the results with you, and to join you in helping your employees pursue and achieve financial wellness. Lorna Sabbia Head of Retirement & Personal Wealth Solutions Bank of America Merrill Lynch * For survey methodology, please see back cover.

3 2016 WORKPLACE BENEFITS REPORT 1 Employees want help pursuing wellness Employees show a growing need for help building healthy financial habits. Our new Workplace Benefits Report survey finds that employees became less certain about their financial futures between 2013 and Facing growing uncertainty, market volatility and financial stress, employees are looking to their companies for help. Our survey highlights the nature of employees struggles and the ways in which employers can support employees as they work toward greater financial wellness. In particular, our research finds that employers can play a key role in helping employees build sound financial habits essential for financial security. At Bank of America Merrill Lynch, we are committed to helping employers and their employees in this effort. We encourage employers to draw on our research and insights to gain understanding about the most important trends affecting workplace benefits programs, and to help employees achieve both short- and long-term financial success. Highlights of key findings: 75% 60% 55% 69% 52% of employees give responses indicating that they are not financially secure Page 2 report feeling somewhat or very stressed about their financial situation Page 4 want help managing their finances page 6 have experienced an increase in health care costs in the past two years Page 10 want employers to provide access to a one-on-one relationship with a financial professional Page 14

4 WORKPLACE BENEFITS REPORT Financial wellness slips Employees responses indicate declines in financial wellness since our 2013 survey. The percentage of participants categorized as Not At All Secure rose from 31% to 41%. The state of financial wellness* Very Secure 8% Somewhat Secure Not Very Secure Not At All Secure 17% 34% * The Financial Wellness Index measures employees financial wellness: that is, how well they feel they are able to meet both future goals and present-day needs. The index is comprised of results from 10 survey components identified through factor analysis. 41% Financially secure Struggling How we measured financial wellness Our 2013 and 2015 surveys asked employees 10 questions, each covering a different aspect of their financial lives. They were asked to rate their level of agreement with statements such as I am always able to pay my monthly mortgage or rent, I am saving enough for retirement and I am always able to pay for health care costs. In each case respondents could choose responses ranging from a strong positive (such as Strongly Agree ) to a strong negative ( Strongly Disagree ). A respondent received a point for each question that he or she answered with the most positive response. Level of wellness was categorized based on the respondent s point total. Note that our wellness measure is based entirely on self-reported sentiment, not on actual financial standing. The fact that financial wellness did not improve, while the economy did, suggests that external factors alone may have limited influence in driving wellness improvements points Very Secure 5-7 points Somewhat Secure 2-4 points Not Very Secure 0-1 point Not At All Secure

5 2016 WORKPLACE BENEFITS REPORT 3 Nearly all components of financial wellness that we measured declined between 2013 and The largest declines came in response to the following questions: 77% 59% 57% 40% 48% 38% I am always able to pay monthly mortgage/rent. (Response: Strongly agree ) I always have money to spend on basic necessities. (Response: Strongly agree ) I am always able to pay for health care costs. (Response: Strongly agree ) The only component for which responses improved was, I am saving enough for my retirement. Nineteen percent strongly agreed with this statement, compared with 15% in 2013.

6 WORKPLACE BENEFITS REPORT Uncertainty leads to stress When we dig deeper into the wellness findings, we discover that the declines in our measure of financial wellness occurred not because employees attitudes about their financial situations turned outright negative. Rather, employees became much more likely to select the second-most-positive response instead of the most positive response. We interpret this shift to mean that employees feel less certain about their finances, even if their actual financial conditions may not have worsened. Employees lack of certainty about their finances seems to manifest itself in high levels of financial stress. Fully 60% of employees report being somewhat or very stressed about their financial situation, up from 50% in Only 24% of Millennials, 18% of Gen Xers and 22% of Baby Boomers strongly agree with the statement I am in total control of my financial situation. 60% of employees say they re somewhat or very stressed.

7 2016 WORKPLACE BENEFITS REPORT 5 Planning makes the difference Examining the responses of the most financially well employees, and contrasting them with the responses of the least financially well employees, highlights the different habits of the two groups and the places where employer assistance could be especially effective. Perhaps the biggest difference between the groups we ve labeled Very Secure and Not At All Secure comes down to one word: planning. Very Secure employees appear far more likely than Not At All Secure employees to envision the future and take steps to prepare for it financially. These findings suggest that employers who want to cultivate financial wellness should focus on helping employees build healthy financial habits, particularly with regard to planning. Employers looking to help their less financially secure employees become more like their more financially secure employees and to help reduce employees financial stress might consider making financial professionals available, simplifying enrollment in benefits programs and communicating around tools and resources that can help with planning. Very Secure employees are far more likely than Not At All Secure employees to say they: Have a firm idea how much savings they ll need for retirement (with more realistic estimates of the amount than other employees). 7% 71% Have a strategy to spend down savings in retirement (employees 50 and older). 18% 69% Think about health savings accounts (HSAs) as long-term medical savings vehicles. 29% Very Secure 64% Not At All Secure

8 WORKPLACE BENEFITS REPORT Employees need day-to-day assistance Before they can plan for the future, employees need to manage their finances today. Employees responses show that they are struggling to juggle competing financial priorities, and in many cases are sacrificing the future to make ends meet. Nearly 3 in 10 including almost 4 in 10 Millennials say they have an unmanageable amount of debt. 80% say being away from work for three months would be either difficult or a major crisis, up from 76% two years earlier. 77% of employees experiencing an increase in health care costs are saving less for retirement as a result, compared to 56% in 2013 (see Health Care Costs, Trade-Offs and Solutions, page 10). Employers can help. Fully 55% of employees agreed with the statement I need help managing my finances. Employers can provide resources that help employees improve their understanding of their overall financial lives, enabling them to set sound priorities and allocate their resources more wisely. (For information about the kinds of assistance employees are looking for, see Helping Employees Take Charge on page 14.)

9 2016 WORKPLACE BENEFITS REPORT 7 Retirement savings assumptions look too rosy Nearly two-thirds of employees say they have increased their focus on retirement planning and saving. Most (70%) say they have at least a pretty good idea how much money they need to save in order to maintain the lifestyle they want in retirement. Although that confidence about savings goals may seem encouraging, employers shouldn t take it at face value. For many employees, their confidence about retirement savings estimates appears to be rooted in unrealistic ideas about how much savings will be enough. Four in ten employees think they ll need less than $500,000 in retirement savings. However, we project that health care costs alone could add up to 80% of that amount for an average couple. Unrealistic savings assumptions 61% say they ll need less than $1 million. 40% say they ll need less than $500,000 in assets. $400,000 $1M in retirement savings only Projected health care costs in retirement for a healthy couple retiring at 65* $40,000 of annual income** * Source: HealthView Services 2015 Retirement Health Care Cost Data Report. Includes Medicare B, D and Supplemental Insurance and expected dental, vision, hearing, co-pays and all other out-of-pocket costs for healthy couple retiring today. ** If withdrawing at a 4% rate

10 WORKPLACE BENEFITS REPORT A need for retirement income plans Employees confidence about their retirement savings needs seems to reflect unrealistic optimism, rather than a rational, well-considered understanding of the actual savings required. One exception: Employees who scored as Very Secure gave much higher estimates. Some 61% said they ll need at least $1 million, and 28% said they expect to need $2 million or more. These figures suggest that more Very Secure employees may have done the planning necessary to develop reasonable savings targets. We found a lack of planning overall with respect to income in retirement. Although 66% of employees say they are worried about outliving their assets, only 36% of survey respondents age 50 or older have a plan to manage and spend down their assets during retirement (excluding respondents who said they intend never to retire). For employees to make a successful transition from accumulation of savings to distribution of income, many more will need to consider their income needs and create a road map for managing their day-to-day and future finances. Very Secure employees were much more likely to report planning, with 69% of those 50 or older saying they have a plan to spend down their savings in retirement.

11 2016 WORKPLACE BENEFITS REPORT 9 Help employees understand their needs and options More than two-thirds of employees say their retirement savings plan at work will be their largest or second-largest source of retirement income. Employers can help employees better understand their savings needs and make the most of their options by: Adopting plan designs with automatic features, higher default contribution levels and a company match structure to encourage greater saving. Communicating comprehensively around benefits plans. Offering greater access to education, guidance and planning assistance at the workplace, through financial wellness specialists. The lack of decumulation strategies also indicates a need for planning help. Helping employees think about both accumulation and distribution as part of one process, rather than separate tasks, may help them feel better prepared to retire, resulting in direct, positive repercussions for employers. Employers can supplement educational efforts by providing access to financial professionals who can help employees develop retirement income strategies, and possibly by offering retirement income solutions within their plans.

12 WORKPLACE BENEFITS REPORT Health care costs, trade-offs and solutions Employees continue to face higher health care costs. Those increases are eroding their ability to take actions that enhance financial wellness, in particular saving for retirement and paying down debt. Health care costs CONTINUE TO RISE Nearly 7 in 10 employees indicate that they have experienced an increase in health care costs over the past two years. Employees are saving SIGNIFICANTLY LESS 23% say they are saving significantly less for retirement. 77% of employees who have experienced an increase in health care costs indicate that they are saving less for retirement as a result. 50% of those who are saving or spending less say they are paying down less debt.

13 2016 WORKPLACE BENEFITS REPORT 11 These findings highlight that any effort to support employees financial wellness must consider their financial lives holistically. For example, to take full advantage of their retirement plans potential, employees must be able to contribute enough and doing so will require help managing health care costs and other aspects of their financial lives. A Health Savings Account (HSA) is one tool that can help manage health care costs. One of the encouraging findings of the study is that the percentage of employees saying they participate in HSAs grew by almost half since One reason for the increase in participation: More employers are making HSAs available. HSA participation on the rise % 54% +16 percentage points INCREASE Health care cost increases are another reason for the rise in participation. Some 46% of employees say they have started or increased use of HSAs or Flexible Savings Accounts (FSAs) in response to higher medical costs.

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15 2016 WORKPLACE BENEFITS REPORT 13 Financial wellness must include health care Saving for retirement medical costs is of paramount importance. HSAs offer a powerful way to prepare for retirement medical costs by providing pre-tax contributions and tax-free withdrawals for medical costs. Yet many employees who participate in the accounts are not using them as long-term savings accounts. Approximately half of plan participants who currently participate in the accounts use them to cover short-term health expenses, rather than setting those funds aside for long-term health care needs. They may need to use the funds in the accounts to pay current medical expenses; alternatively, some employees may not know that money in HSAs can be set aside for the long term. A short-sighted take on HSAs Providing a financial wellness program that addresses a person s whole financial picture can help employers address the trouble spots that inhibit employees ability to build financial security. The rising cost of health care clearly is one of those trouble spots. Offering access to financial education, guidance and planning resources may help employees better balance their short-term needs, such as current medical bills, with long-term needs, such as health care spending in retirement. Employers also may want to examine the ways they communicate around benefits. In the case of HSAs, education efforts and other communications may focus on helping employees better understand the connection between the accounts and other long-term savings accounts, such as 401(k) plans. 53% 43% of HSA participants consider them short-term health savings vehicles. consider them long-term health savings vehicles.

16 WORKPLACE BENEFITS REPORT Helping employees take charge Employees overwhelmingly look to their employers for help managing their financial situation. Yet 59% say they need help understanding how those benefits can work for them. All generations want one-on-one help 83% of employees agree with the statement The financial benefits offered by my employer are critical to my financial security. 54% 55% 48% 65% 56% 42% One-on-one access to a financial professional is a powerful tool to help employees plan their financial futures, and employees of all ages say they want it. In fact, the percentage of employees saying that they want online tools (54%) was statistically identical to the percentage saying they want access to a one-on-one relationship with a financial professional (52%). Although digital tools may be convenient to provide and easy to access, a combination of digital tools and personal guidance, designed to work together and reinforce each other, is likely to prove more effective at supporting financial wellness. Access to a one-on-one relationship with a financial professional. Comfortable using online tools. Millennials Gen Xers Baby Boomers

17 2016 WORKPLACE BENEFITS REPORT 15 We also sought to identify the impediments that block employees from taking full advantage of the financial management assistance offered by their employers. By far the most common barrier relates to privacy. Nearly half of employees who aren t comfortable seeking financial management help from their employer say the primary reason is a desire to keep their personal financial life separate from their work life. 47% Main concern is keeping personal financial life separate from a Privacy concerns work life (among employees who aren t comfortable seeking financial management help from their employer). Employees reluctance to share information results in an interesting dynamic, in which employees overwhelmingly want employers to help, but in many cases are afraid to ask. A financial wellness program that is accompanied by strong communication and provided by a well-regarded organization may help alleviate employees privacy concerns. It is clear that employers play a critical role in helping their employees achieve financial security not just through salaries, health insurance and retirement plans, but through broad range of assistance.

18 WORKPLACE BENEFITS REPORT Incentives drive awareness of wellness programs Awareness of financial wellness programs seems to be lagging their availability. Low awareness of financial wellness programs 31% of employees of large firms don t know if their employer has a financial wellness program. Incentives appear to help increase awareness. Almost all employees (97%) of firms that offer financial wellness incentives say the incentives are at least somewhat effective. Employees seem much more convinced than employers about incentives: 70% of employers surveyed for the 2015 WBR indicated that they felt incentives were effective. Incentives work, employees say 36% of employees of large firms say their employer offers a financial wellness program. 48% of large employers said they had a financial wellness program in place. 97% of employees whose firm offers financial wellness incentives feel these incentives have been at least somewhat effective. 70% of employers feel incentives are effective (2015 WBR).

19 2016 WORKPLACE BENEFITS REPORT 17 Incentives work When asked what incentives they want their companies to offer, employees of firms with wellness programs favored: 63% Additional contributions to employees 401(k)s/HSAs 55% Cash incentives Financial wellness programs can t live up to their potential if employees aren t aware of them. The results of our survey indicate that incentives may be useful to drive employee awareness of these programs, helping to realize that potential. Incentives may be used in conjunction with other tools, including promotions, seminars and one-on-one meetings and communications. 48% Discounts on health insurance premiums/other products

20 WORKPLACE BENEFITS REPORT Conclusion Employees are struggling to manage their financial lives. They spend much of their time at work, so it s natural for them to look to their employers for help. To capture the advantages of greater employee financial wellness potentially including happier, less-stressed and more-productive workers benefits programs should aim to address all aspects of employees financial lives. Success will require an ongoing commitment to helping employees balance competing priorities and plan for the future, as well as a culture that makes it okay for employees to ask for help. Offering a complementary, holistic mix of resources, including digital tools, educational campaigns and access to oneon-one relationships with financial professionals, is likely to be the most powerful way to provide the support employees need. Bank of America Merrill Lynch can assist employers in this effort by offering a financial wellness program with a more comprehensive range of benefits, from retirement plans to Health Savings Accounts to access to one-on-one guidance from financial professionals. The mix of programs can be tailored to meet the needs of employees at all life stages and life events. Our benefits professionals are available to help you develop a financial wellness program for your company, and to engage and support your employees around their benefits ultimately helping companies become employers of choice by supporting their employees financial well-being.

21 2016 WORKPLACE BENEFITS REPORT 19 At Bank of America Merrill Lynch, our mission is to work with employers to help employees live their best financial lives. For more information about how we can help your company and its employees with workplace benefits, contact your Bank of America Merrill Lynch representative or call Visit us online at benefitplans.baml.com or us at

22 About the Workplace Benefits Report Methodology: Boston Research Technologies conducted an online survey with a national sample of 1,227* employees between October 27 and November 11, 2015, on behalf of Bank of America Merrill Lynch. To qualify for the survey, employees had to be current participants in a 401(k) plan; the plan did not have to be provided by Bank of America Merrill Lynch. Bank of America Merrill Lynch was not identified as the sponsor of the study. This report is designed to provide general information for plan fiduciaries to assist with planning strategies for their retirement plan and is for discussion purposes only. Bank of America is prohibited by law from giving legal or tax advice, and recommends consulting with an independent actuary, attorney and/or tax advisor before making any changes. Respondent demographics broke down as follows: Male: 45% Female: 55% Millennial: (total number) 359 Generation X: 459 Baby Boomer: 408 * The total number of respondents exceeds the sum of Millennials, Generation X and Baby Boomers because one respondent was older than the Baby Boomer age cutoff. Bank of America Merrill Lynch is a marketing name for the Retirement Services business of Bank of America Corporation ( BofA Corp. ). Banking activities may be performed by wholly owned banking affiliates of BofA Corp., including Bank of America, N.A., member FDIC. Brokerage services may be performed by wholly owned brokerage affiliates of BofA Corp., including Merrill Lynch, Pierce, Fenner & Smith Incorporated ( MLPF&S ), a registered broker-dealer and member SIPC. Investment products: Are Not FDIC Insured Are Not Bank Guaranteed May Lose Value 2016 Bank of America Corporation. All rights reserved. ARJSKHTH 04/2016