Financial wellness is the next benefits boom for employers

Employer interest in financial wellness is one of the key focus areas for benefits program, in part to maintain high engagement and employee retention. Research from PwC found that financially stressed employees are likely to be less engaged and productive, and that they are twice as likely to look for a new job.

Recent data shows that more workers are struggling financially. Credit card debt has reached a sky-high $1.13 trillion while 401(k) hardship withdrawals recently hit an all-time high. In fact, 56% of Americans cannot afford a $1,000 emergency expense without having to secure a loan or tap into money through high-interest credit card debt.

While employers may feel limited in their ability to ease financial strains in the workforce, there are new solutions entering the market that can support financial wellbeing. For example, employers can play a role in helping the workforce build an emergency savings.

Survey data from Webster Bank found that a majority of Americans (57%) report that saving for an emergency is a top financial priority, however, nearly a third (31%) do not have an emergency fund and only 23% have enough saved to cover more than 6 months of expenses.  Additionally, this emergency savings gap exists across all demographics and income ranges, demonstrating that this savings “gap” affects employees across the employer’s population.

This presents an opportunity for employers to consider ways to encourage their employees to build an emergency savings and have funds available for unplanned expenses or financial emergencies. A tool becoming increasingly popular in benefits packages is Emergency Savings Accounts, commonly known as an ESA.

An ESA is a group facilitated, employer and employee funded, savings account designed to address shortcomings in covering emergency expenses. These employee-owned accounts are funded through payroll contributions and often subsidized by employer incentives. Employers can offer a lump sum, milestone and employee match contributions. ESAs are funded with after-tax contributions and funds are available whenever needed without restrictions.

While it might be tempting to use emergency savings for a vacation or other non-emergency expense, employers should encourage their workforce to a narrow list of acceptable expenses that present real emergencies.

These accounts have a clear interest among the workforce. One report suggests nearly 4 in 5 employees who do not have an ESA would be interested in one. Another study indicates that 9 out of 10 want an employer-matched ESA program. Since these accounts are not subject to ERISA regulations, they afford employers with a tremendous amount of flexibility, and can be implemented at any time, allowing for employers to add these high value, low-cost benefits outside the traditional open enrollment timeframe.

The success and ease of these accounts are already catching the eye of many large employers. Humana, Starbucks and even the San Antonio Spurs are among those providing their employees the opportunity to prepare for unplanned expenses.

Related: Beyond the 401(k): Financial wellness offerings are a ‘must-have’ for employees

While ESAs are a powerful tool that can support consumers with emergencies, employers also have a number of other tools available to them to help increase financial wellness. For example, offering tuition reimbursement and student loan assistance can provide support to employees who are or have taken an active step in improving their skillset. Lifestyle Spending Accounts (LSAs) also afford employers new tools in helping employee financial wellbeing and matching HSA or FSA contributions is yet another way to help employees be prepared to pay for medical emergencies.

Financial wellness is an increasingly important area of concern for employers, especially as they seek to retain and attract the best talent available in the market. Financial strain can impact performance and employers are now seeking unique ways to support their workforce through robust financial wellness programs.

The last few years have brought new hardships for employees and employers who adapt their offerings will continue to come out on top. ESAs and other offerings are gaining in popularity and will likely remain the next boom in employer-sponsored benefits.