How strategic use of benefits accounts can ease financial stress

With inflation eating into the American budget, a recent article by Alan Goforth pointed out that 2023 will likely be a year of ‘living sensibly.’ Indeed, the current economic situation presents employers with an excellent opportunity to support employee mental health and financial wellbeing, boost productivity, and attract and retain a quality workforce through the strategic use of existing employee benefit plans. Benefits advisors are particularly well positioned to encourage and guide employers in the creative and compassionate deployment of benefits beyond the standard offerings. 

Employee financial stresses

There was a time when commuting was consistently listed as a top source of stress for American workers. However, with the widespread transition to remote working, fewer now cite commuting. Instead, financial stress has risen to the forefront.

In its 2022 Wellness Barometer Survey, Brightplan found that 72% of employees are stressed about finances. In addition to rising inflation (79%), key drivers included planning for retirement (59%), building emergency savings (55%), and paying off debt (44%), among others.

The survey further found that employee financial stress impacts mental health (77%), physical health (52%), engagement (47%), and productivity (45%). The average employee affected by financial stress loses 11.4 hours of productivity per week, costing U.S. employers an estimated $4 billion weekly.

Salary Finance reports that U.S. workers increasingly live paycheck to paycheck, with more than two-thirds saying they are worse off financially than a year ago. Even higher earners are not immune; this category includes 1 in 3 Americans earning over $100,000 a year. 

Fidelity Investments shares that the top three finance-related New Year’s resolutions among American workers heading into 2023 were saving more money (39%), paying down debt (32%), and spending less (28%).

Using benefit accounts to support financial wellbeing

Employers can make a real difference in their workforce’s mental health, engagement, and productivity by offering employee benefit programs that support financial wellbeing. 

To address employee stressors including emergency savings, paying down debt, retirement planning, and living on less due to inflation, benefits advisors should encourage employers to look into creative benefits such as emergency savings accounts, student loan assistance plans, health savings accounts, and lifestyle spending accounts — all of which provide a measure of relief.

Emergency savings accounts

With emergency savings accounts (ESAs), employers automatically deposit a portion of each paycheck on the employee’s behalf into a separate bank account. Following the concept that “you don’t miss what you never had,” this process makes it easier for employees to accumulate emergency savings.

ESA deductions are made post-tax, so no special administrative procedures have to be followed. The employee owns the bank account and all funds deposited into it, and the account goes with the employee if they leave the firm.

Student loan assistance plans

According to Experian, more than 43.5 million Americans held outstanding student loan debt in 2021, with an average balance of $39,487. Members of Generation X (born between 1965-1980) had the highest average among all generations, at about $46,000.

Until the passage of the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March 2020, assistance with student loan repayments received by an employee was taxable as income. CARES changed that, allowing employers to provide non-taxable employee student loan repayment assistance through the end of 2020. The Consolidated Appropriations Act of 2021 (CAA) extended the program through the end of 2025.

By establishing an educational assistance program meeting IRS Code Section 127 requirements, employers can contribute up to $5,250 per employee annually in student loan repayment assistance (SLRA). Employers get the tax deduction, and the employee pays no federal tax on assistance received.

Health savings accounts

Health savings accounts (HSAs) are available to employees enrolled in a qualifying high-deductible health plan. Employees set aside funds tax-free to help cover eligible health care expenses. Since unused balances roll over indefinitely and can be invested, HSAs also serve as alternative retirement accounts.

The amount an employee can contribute to their HSA account tax-free is set by the IRS each year. For 2023, the annual contribution limit is $3,850 for employees with qualifying self-only coverage, $7,750 for family coverage, plus an additional $1,000 if age 55 or older.

HSAs provide a “triple-tax advantage” in that contributions are made pre-tax, withdrawals for qualified health care expenses are tax-free, and interest or investment gains on unused balances are tax-free. After age 65, the account owner can withdraw funds for any reason without penalty and is only taxed on amounts not spent on qualified health care expenses.

Lifestyle spending accounts

Lifestyle spending accounts (LSAs) are post-tax, employer-funded reimbursement accounts that assist employees in accessing products, services, or activities to help improve their sense of wellbeing. Expenses reimbursed through an LSA are tax-deductible to the employer, and employees are taxed only on the amounts actually received.

LSAs are growing quickly in popularity because they offer tremendous flexibility to address the needs and interests of a diverse workforce. Eligible expenses are chosen by the employer and can be nearly unlimited in scope. Choices might include classes in budgeting and financial planning, physical fitness, mental health, education, cultural activities, and so on.

Beyond the typical

Today’s marketplace offers so many benefits options beyond the standard medical, dental, and 401(k) package. These additional and creative benefits can offer meaningful financial cushioning to workers struggling under the burden of inflation. Too often, employers are unaware of these alternative benefits or unconvinced of their efficacy in improving overall employee well-being. Employee benefits advisors are in the perfect position to expand the thinking of their employer clients, guiding them in the strategic use of creative and compassionate benefits to help support, attract, and retain a quality workforce.

As DataPath’s Chief Marketing Officer, Bo Armstrong focuses on identifying emerging market trends within the benefits industry and advocating for customers and their needs within DataPath.