If defined contribution plan executives want to establish and maintain a successful financial wellness program, education isn't enough, says a report issued Thursday by Cerulli Associates, Boston.
Key elements include creating a program whose success can be measured easily and quickly and developing one that reflects the demographics of unique workplaces, the report said.
Interviews with record keepers and sponsors yielded "a consistent theme," Daniel Cook, a research analyst in Cerulli's retirement practice, said in an interview. "How do you prove the value of financial wellness to clients? How do you address the challenge to prove that financial wellness is more than a marketing ploy?"
Mr. Cook said Cerulli's research illustrates that financial wellness programs should emphasize a few specific goals for which specific actions can be taken and measured during a "realistic" time frame.
"A broad array of goals" without mechanisms for action and measurement will prove disappointing, he said. Mr. Cook recalled one interviewee's request: "If there will be an investment, we want it to be worthwhile and measurable."
The Cerulli report offered some examples of education-oriented vs. action-oriented financial wellness. The former would feature offering "a library of online articles covering various topics such as budgeting, investing basics, and retirement income planning," the report said.
The latter would require administering a survey on a participant website and "ask questions related to their individual financial situation, such as 'What are your financial goals? What types of debt do you have?'" the report said.
"Use survey results to identify two to four areas for financial improvement for each participant," the report said. "Prominently display areas for improvement on the home page of the participant website and provide links to learn more about these targeted topics."
Mr. Cook noted that a Cerulli survey of 401(k) sponsors revealed that "improving overall financial wellness of employees" ranked second in importance to "maximizing participant savings" as the top priority of plan executives.
The desire for improved financial wellness was more pronounced among larger plans. For those with $1 billion or more assets, financial wellness was the top priority for 37% of respondents vs. 24% who cited maximizing participant savings, the report said. For plans with assets of $500 million to $999.9 million, 41% said financial wellness was the top priority vs. 35% who mentioned maximizing participant savings. In both cases, financial wellness was the highest ranked goal, the report said.
One example of the need for targeted financial wellness is student loans; the report indicated education-only information is inadequate. "Participants are unlikely to enact change based solely on an article they read," the report said. "More effective student loan solutions engage participants, spur them to track and set goals and motivate positive changes in savings behavior."
Mr. Cook said a Cerulli survey of 401(k) plan participants showed that significant percentages of younger employees said they would be more inclined to increase their 401(k) plan contributions if their employers made matching contributions to help pay off student loan debt. The results underscore the need for employers to understand unique demographics of their workforce, Mr. Cook said. If an employer has many millennial-age workers, "they have to develop products and services to address this need."
The Cerulli report is based on three separate surveys: a second quarter 2019 nationwide survey of 1,487 active and retired 401(k) plan participants; a fourth quarter 2018 survey of 800 sponsors of 401(k) plans, and a second quarter 2018 survey of 26 record keepers – representing $5.9 trillion in assets in plans covering more than 80 million participants — conducted in partnership with the SPARK Institute.