Millennials need smarter benefits

Perspective. It needs to change.

The view from the plan sponsor’s office is changing as organizations look to the changing composition of the workforce and the financial fallout from the COVID-19 pandemic on their employees. Older workers are retiring, and their focus is on financial planning for retirement. Generation X is likely focused on the need to save more for retirement because they don’t have a pension plan and also contributing to a 529 plan for their kids’ college. But for millennials – those over 20 and under 40 – the picture is one of struggling with massive student debt, climbing out from under the bills brought on by COVID-19 lockdowns and layoffs, and a sluggish economy that delivers lower incomes.

Related: COVID-19 causing life and career setbacks for Gen Z

Employers aren’t insensitive to this. But when it comes to employment benefits that can help the workforce manage debt, they’re still mostly at the stage of organizing the services offered and developing a roadmap on how to find and use the resources available. They’re looking at voluntary benefits, 401(k) rates, and products, while millennials have just one question: “How are you helping my balance sheet?”

Far from simply offering the same packages and delivering the same messages as though nothing has changed, sponsors need to dig deeper and understand, through surveys and analyses, the bigger, holistic picture of the workforce, and ask themselves, “What’s happening?”

The demographic lowdown

Today the millennial cohort is a major component of the workforce. Team-oriented, civic-minded and tech-savvy, they are strapped with the largest amount of education and credit card debt in the North American economy. Result? They’re putting off buying a home, some medical procedures, and making career moves. The knock-on effect in the workplace is stress, leading to illness, poor motivation, and lower productivity.

While health and retirement benefits are valued across all generations, millennials are more inclined to compare notes, research (aka “Google”), and discuss employer benefits with their peers than any prior generation. In addition, millennials appear to bring their online shopping habits and do-it-yourself consumer behaviors to health care interactions. However, these behaviors are not guiding millennials toward financial wellbeing. Unlike older generations millennials reported in an EBRI issue brief that covering monthly bills and debt repayment cause them the most financial stress.

For decades employers have embarked on benefit strategy and design initiatives by benchmarking features, comparing to peer groups and projecting cost. But benchmarking by itself is simply justification for cost management; putting a meaningful design in place needs a clear understanding of employee behaviors and needs. For example, if I have $1,000 to spend on each employee, should it be spread like peanut butter across the whole group, or should the plan design be more responsive to individual needs?

Employers have to do what they can to make it easier for this group to find, get, understand, and execute the financial actions that will move the needle out of the red. And that takes flexibility in program design. Modifying medical benefits to reduce deductibles, channeling funds to emergency savings, maximizing the employer match, helping with tax strategies and timing, and providing easy access to financial advice are all key to developing a roadmap to financial support.

Input from this group, diving deeper into data analytics, and re-enforcing the commitment to delivering better protection and oversight that they can take advantage of can only lead to greater goodwill and trust.

More insight, better tools

Millennials are hardwired to their smartphones and technology and presume 24/7 access to global information is a given. As a result, smarter delivery of the benefits available requires online decision support tools to meet their varying needs. A robust decision support tool that can link pay, 401(k) savings and other employer provided savings options like 529 plans, life events, tax implications, debt, and benefit claims would provide employees with:

• Better insight into their benefit elections,
• Clear understanding on the impact on their take home pay,
• Redirecting their hard-earned dollars towards meaningful benefits, and
• Confidence in financial decisions.

Common concerns they have can be simply outlined such as:

• How the short-term disability policy works with FML,
• Considerations for banking vacation days if carryover vacation is offered,
• Impact to retirement and HSA savings when extended leave is being considered,
• Tax implications with retirement savings and how plan features can support their tax strategy
• Child care cost and other considerations like starting a 529 plan, and Pre-natal benefits covered under health plan – exercise classes, retail discounts, etc.

The nitty-gritty

A “robust decision support tool” should be online and has to encompass all benefits available and raise a red flag when a choice is made that may not be the best financial decision, such as paying for financial advice when the company offers an alternative free of charge through the EAP program.

To provide “better insight into their benefit elections” above, I’m not talking about a simple list of the elections available, but real examples of the financial or physical benefit. For example, if an individual is thinking about starting a family, a complete overview of the benefits provided, and the potential financial impact should not be a scavenger hunt to attempt to put together the pieces of how to plan for this event.

Imagine the possibilities if data analytics would combine medical benefit elections/behaviors with 401(k) behavior. Employers could identify those who have maximized matching contribution but do not save or maximize their HSA contribution, or those who fall below the 401(k) plan savings averages because the cost of medical benefits digs too deep into their take home pay. The data could redirect benefits in a meaningful way where it would suggest shifting saving in the HSA if the 401(k) match is maximized, or restructuring the cost of medical benefits to free up cash to save in the 401(k).

Make it easy

The time to start revamping the benefits program is now, as increasing numbers of Baby Boomers retire and organizational demographics change. While the overall focus will always be on the workforce as a whole, the biggest challenge – and the most rewarding solutions – are those programs that are thoughtfully put in place, easy to navigate, and help lift people out of hardship. The investment of time and money in analytics and surveys to help understand the best ways to deliver the best solutions will benefit the whole organization.

And when it comes to recruiting and retaining top-tier talent, this is the perspective that differentiates you from the competition.

Sandy Pappa is a principal specializing in retirement at Buck.