How to Measure 401k Financial Wellness Success

CFOs and human resources heads frequently wonder how instituting a financial wellness program will impact the bottom line. Better question—what will happen if they don’t?

401k, financial wellness, employer, employeeGreat concept, but how is it quantified?

[From Issue 3, 2017]

It’s a feel-good. It’s the rage. It’s a movement, and for good reason—it’s desperately needed. But what are the best ways to measure financial wellness success?

Advisors are touting the benefits of financial wellness initiatives to their clients and for the most part, companies are falling in line.

According to a 2017 health and well-being study from Fidelity Investments and the National Business Group on Health (NBGH), 84 percent of companies now have financial security programs, an increase from 76 percent the prior year.

However, there are still obstacles, such as how to show if your program is a success—plus quantifying the benefits of financial wellness and correlating it to a bottom line impact to please the profit and loss mindset of corporate CFOs.

Experts like Liz Davidson, CEO of Financial Finesse, are striving to make the ROI concern a non-issue.

Davidson says that financial wellness can’t connect the dots on quantifying ROI as directly as some CFOs would like.

“CFOs that look at financial wellness through a narrow lens struggle with the fact that there is no line item on the income statement that shows increased revenue or reduced costs as a result of a financially healthy workforce. Financial wellness has a financial impact but can be hard to measure,” she says.

So Davidson and her team set out to do just that, research—and measure—the impact of financial wellness.

She was surprised by what they found.

They conducted a case study of a Fortune 100 company’s comprehensive workplace financial wellness program from 2009 to 2014. Specifically, they zeroed in on a few tangible and trackable elements (garnishments, flex spending/health savings accounts and absenteeism) and then measured the change in employee financial wellness scores that were on a specialized 0 to 10 scale.

As the median employee financial health scores rose, the costs to the company diminished, resulting in a measurable bottom-line impact. “The correlation was so strong,” says Davidson. “For every point increase on the employee wellness scale, there was a direct financial

“The correlation was so strong,” says Davidson. “For every point increase on the employee wellness scale, there was a direct financial savings per employee for the company.”

Davidson adds that the trackable elements only represented five to 10 percent of what a financial wellness program involves. She and her team are working to add elements to their ROI model, including measuring the costs of reducing healthcare costs, delayed retirements and employee turnover.

Translation: companies could benefit even more financially when the overall program is taken into consideration.

When it comes to financial wellness, company leaders have moved well past the “check the box” perspective says Pearce Weaver, a senior vice president in Fidelity Investment’s Benefits Consulting Group.

“Employers have done a good job in the last five to 10 years. Financial wellness used to be embedded in employee assistance programs but they have broadened the initiatives considerably,” he says.

However, some companies still are trying to establish a trackable bottom-line outcome for financial wellness programs.

Weaver points to the Fidelity/NBGH study that asked respondents whether their organization connected employee well-being to any key business metrics. Thirty percent were tying it to financial and/or operational metrics. Another 40 percent were considering this step in the future. Weaver offers an interesting observation on the 19 percent of respondents who said they weren’t planning on tracking employee well-being to a specific business metric.

“Many of those companies have moved on. Employee well-being is just an ingrained part of their culture. They don’t need a complicated metrics tracker because there are many studies to show that it works.”

He also agrees with the frequent observation that companies have a laundry list of priorities and that it can become “mind-numbing” to attach ROIs to each wellness program being offered.

Julie Stich concurs. As the associate vice president for content at the International Foundation of Employee Benefit Plans (IFEBP) and author of What Makes a Workplace Financial Wellness Program Successful? she’s explored many nuances of corporate behavior with regards to wellness programs.

She says the need to affix an ROI to employee financial health is definitely a debate in the larger wellness world.

“If you want employee well-being there shouldn’t be such a focus on the bottom line,” Stich explains.

Research seems to back her.

IFEBP asked employers what the main reason was for offering wellness initiatives.

In 2015, 60 percent of those surveyed said they did it to improve overall worker health and well-being and 40 percent said it was to control or reduce health-related costs. This year, the split is even greater with 75 percent focused on well-being and 25 percent on costs.

“There is a movement away from offering a wellness program just to save money,” says Stich.

But she also points out that simpler processes can be employed to show that financial wellness programs are working.

Companies can conduct a “pre-offering” assessment and then conduct a post-assessment after education has been conducted and the program—such as retirement savings matching or establishing an emergency fund—is in full swing.

Fidelity created a Financial Wellness Score, akin to the measurements that have long been in place for health wellness. Fidelity’s approach focuses on budget, debt, savings and protection but also incorporates objective criteria, such as how much savings a person has and how they manage expenses, as well as subjective criteria, like how they feel about their finances.

“There was a ton of data based on certain metrics that could help create a financial wellness score,” says Weaver. He thinks companies can use this effectively because it creates a ‘hierarchy of needs’ that help employers focus their wellness strategies.

For example, the score can identify a certain percentage of employees who are doing the best because they have life insurance in place, an emergency fund and are saving the right amount. Weaver says that companies can instead focus on those struggling with the financial basics and who aren’t achieving financial security.

And they all agree employee inertia can still affect a program’s success.

Or as Fidelity’s Weaver puts it: “If you allow people to do nothing, that will be their first choice.”

Davidson says that some companies have a fear of “what if we build it and they don’t come?”

She believes there is a cultural reality to the American mindset that allows people to rise to the occasion and that currently there is a movement to be more financially self-sufficient.

“Today’s times are jarring. Pensions are gone. We have to be even smarter about navigating health care. There’s a record load of student debt. There is an urgent need for people to be better with money.”

Davidson says that this will make more people engage because they want to be better with their physical, mental, emotional and financial well-being.

Being part of these kinds of programs are simply a way to cope with the pressures they are feeling, she adds.

Creating different avenues for engagement is also critical to making inroads on employee inertia obstacles, says Weaver. He cites options such as social and mobile elements, as well as communities within an organization.

“It starts from the top,” adds Stich. “If leadership deems it is important, that will help. But that peer level support is just as important as leadership.

“When employees see coworkers achieve certain wellness milestones and become internal champions, there is a groundswell of success stories.”

Advisors can approach bottom-line concerns in a variety of ways. First, they can offer a reality check with data that shows the impact of financial stress on workers.

A Workplace Options/Public Policy Polling study found one in three workers will miss work because of personal finances or associated stress, and that millennials are far and above the group that is more likely to be absent. Six in ten workers admitted that they regularly deal with personal financial matters during the workday.

Weaver adds that companies need to recognize the tight correlation between health and financial wellness.

“The more financially fit an employee becomes, the better it is for their health.”

Advisors can also use an approach similar to what Stich outlines in her paper.

First, a company has to make financial education a commitment and be patient.

“It’s a journey, not a sprint,” she cautions.

Next, it needs to “know” the employee population, and she reiterates the need for assessments.

“It’s critical to have a good understanding of employees’ financial challenges to build a program that addresses their needs.”

Successful financial wellness programs provide education on multiple topics including savings, investments, insurance, spending, health care in retirement and pre-retirement financial planning.

The educational materials need to be customized to be most effective. Stich says this may seem obvious, but many employers use generalized communication and report less successful results.

Lastly, there needs to be increased accessibility and inclusion. Employers should set up programs to be convenient and open to all or most. If a face-to-face program is planned, participation will be greater if the event is held during work hours.

Advisors tend to focus too much on plan design and not enough on human capital management, adds Davidson.

“They need to have a holistic approach and provide strategy with respect to retention, benefits engagements, etc. They need to connect the dots for company leadership.”

Weaver also says that advisors need to be prepared to help companies manage their programs and help them recognize an eventual return on investment.

“A company may say that financial wellness for employees is part of our culture and important to their workforce. But they can also tie it to safety performance if it applies. Or does it help them become an employer of choice?”

He notes that there are a number of metrics that show success that aren’t necessarily tied to specific financial outcomes, and Davidson offers one last thought that flips the ROI argument around.

Companies shouldn’t be asking what it costs to implement a financial wellness program, she says. “They should be asking themselves, what will it cost me if I don’t.”

Lynn Brackpool Giles is former Managing Director of Communications and Consumer Services for the Financial Planning Association (FPA). In this senior management role, she oversaw all corporate and strategic communications, media relations, legislative communications and consumer affairs for the national association.

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