For plan sponsors looking to improve employees' retirement readiness, personal debt is an area of special concern.
A growing number of employers in recent years have started supporting employees in debt management.
In a financial wellness survey taken by 687 Durham (N.C.) Public School employees last year, employee debt levels received a grade of D or F across nearly every demographic measured, said Amy L. Simonson, vice president, finance and operations at Verity Asset Management Inc., a retirement consultant to the district.
Hoping to help employees better plan for their retirement needs and prevent debt from crowding out retirement savings, DPS officials launched a financial wellness program last year that focused, in part, on debt management. In addition to providing access to online articles, videos and blogs, DPS officials brought in members of the state's employee credit union to conduct a debt management workshop, which addressed everything from credit card debt to mortgage debt.
Along with increased employee savings, employers cite reduced employee stress and improvements in workforce retention and recruitment as reasons for their efforts.
"When you look at what are the challenges to participants having successful (retirement) outcomes, very, very high on the list is personal debt," said Todd Timmerman, Charlotte, N.C.-based founder and managing director of Retirement Plan Analytics, which provides fiduciary consulting services to sponsors along with financial wellness services. "If we didn't come up with a solution to help participants with personal debt — as much as we can do with behavioral finance and good fiduciary solutions and value on expenses — it was really going to be hard for our clients to have successful (retirement) plans."
Durham Public Schools is an RPA financial wellness client.
Said Shane Bartling, San Francisco-based senior consultant at Willis Towers Watson PLC: "The earlier you can engage an employee in the process of planning their finances over the course of their life ... the better, before they make commitments that might crowd out retirement savings."
While improvements have been made in recent years, "American families just reaching retirement or those newly retired are more likely to have debt — and higher levels of debt — than past generations, specifically those in the 1990s," the Employee Benefit Research Institute said in its triennial debt report released in March.
In a separate survey report by the Society of Actuaries in January, 55% of older U.S. workers reported having mortgage debt, while 46% had credit card debt, and 44% had a personal or car loan. Some 1,000 active workers between the ages of 45 and 80 were surveyed.
In Mr. Bartling's view, broad workplace debt management programs are a "nascent trend." The consulting firm has several clients building their approach to supporting employees in debt management and evaluating what role is appropriate as an employer, he said.
An initial step Mr. Bartling said he believes a number of employers already have taken is packaging educational resources in ways easier for employees to digest. A step beyond that would be offering interactive decision-support tools, followed by access to independent financial counseling and engaging providers that provide access to credit, he said. That last step is where the "biggest governance hurdle exists," Mr. Bartling said. "How do you perform ongoing due diligence of that?"
A key challenge: As lenders expand their capabilities, employers that started out providing assistance on the student loan side might find themselves unintentionally offering a broader lending facility to their workforce.
An Alight Solutions survey published earlier this year suggests it is still early innings for workplace debt management programs. Of the 187 employers surveyed, only 23% said they believe they should help their employees with debt management. That compares to 46% of employees who believe employers should provide debt management assistance.