Q: What types of financial wellness programs are being offered
A: Employers are providing educational
resources, seminars, communications
and other tools to help employees evaluate and handle their individual financial situations. There are several vendors
that provide programs of different levels
relating to financial wellness. Depending
on the demographic group, different types
of financial wellness programs may be
more valuable. For example, Millennials
may be more interested in tuition consolidation or payment programs, whereas
other workers may want to evaluate ways
to save for their children’s college or retirement. Employers should evaluate their
own employee needs when considering
financial wellness programs to ensure that
the maximum benefit for these programs
Q: How does financial wellness
affect retirement plan savings?
A: Without a doubt, employees who are
financially unstable are less likely to save
for retirement. Additionally, financial
issues can cause employees to take premature withdrawals from their retirement
plan. These withdrawals can have a significantly negative impact on retirement readiness.
According to the 2017 PWC Employee
Financial Wellness Survey, 51% of
Millennials and 57% of Generation X
employees have withdrawn funds for
Millennials and 18% of Gen X employees
have withdrawn retirement funds for
medical bills. While many of these with-
drawals are likely in the form of loans,
even if the money is paid back over time,
the employees will be losing the benefit of
having the loans invested during the time
the loan is being repaid. Encouraging and
assisting with financial wellness will also
help employees maintain and increase
Q: How can employers encourage
retirement plan savings?
A: Employers can help employees save for
retirement by implementing automatic
enrollment and automatic escalation
programs as part of their 401(k) programs.
A 2015 Vanguard Research study “
Automatic Enrollment: The Power of Default”
indicated that the participation rates of
401(k) plans with auto-enrollment features
were 92% versus 42% in plans with voluntary enrollment, over the study’s years—
2010 through 2012. Additionally, of employees who were automatically enrolled,
only 10% opted out of auto-enrollment.
Thus, while financial wellness tools
can be important for employees to help
establish financial security, plan sponsors should not forget changes that can be
made to their existing benefit plans and
programs, to that end.
Q: What do employers need to
consider when thinking about
A: Some financial wellness programs are
being provided as an add-on to the employ-
er’s existing 401(k) plan. This means the
cost of the financial wellness program is
being paid from plan assets. Any fees that
are paid by participants are held to a fidu-
ciary standard and must be reasonable.
Before paying expenses from a retirement
plan, employers should evaluate whether
paying for such a service is a permis-
sible and appropriate plan expense. (See
DOL Advisory Opinion 01-01A, and Field
Assistance Bulletin 2007-1.)
The employer should evaluate many
things, including whether the benefit being provided complies with the “exclusive
benefit rule” under the Employee Retirement Income Security Act (ERISA). Under
the rule, a fiduciary must discharge his
duties solely in the interest of participants
and beneficiaries. Specifically, an employer
should be comfortable that the expense
may be paid by the plan and that the service
benefits the plan and its participants.
Part of the evaluation should include
reviewing which employees receive assistance from the financial wellness program
and whether those employees are participating in the 401(k) plan or whether
there is some other benefit to the plan.
Additionally, if an employer determines
that the payment is indeed a permissible
plan expense, the cost of the program
should be evaluated. Any fees paid by the
plan must also be communicated to participants in the participant fee disclosure.
Furthermore, fiduciaries should take care
to document their decisions and the rationale for their decisions.
Employee financial wellness is
becoming more and more important.
However, in addition to determining
whether financial wellness programs
make sense for an organization, plan sponsors should evaluate how these programs
interact with their existing benefits,
including their 401(k) plan.
NOTE: This feature is to provide general
information only, does not constitute
legal counsel, and cannot be used or
substituted for legal or tax advice.
Lisa Barton serves as the managing partner of the Morgan Lewis Boston office
and is leader of its employee benefits and executive compensation practice. Her
work encompasses all aspects of employee benefits and executive compensation
arrangements, including the design, drafting and operation of tax-qualified
retirement plans, health and welfare plans, nonqualified deferred compensation
plans and equity compensation plans. She advises clients with respect to
compliance with the Internal Revenue Code, Employee Retirement Income Security
Act, COBRA and other federal and state laws affecting employee benefit plans,
and often represents clients before the federal agencies responsible for regulation
of these programs—e.g., the Internal Revenue Service, Department of Labor and
Pension Benefit Guaranty Corporation. If you have any questions about your
defined contribution plan that you would like Lisa to answer, please send them