Among the many lessons learned from two years of COVID disruption is the critical role employers play in the day-to-day financial well-being of their workers – and the central role that day-to-day financial well-being plays in attracting and to retain excellent employees.
Yet, ironically, the benefits budgets and energy of many companies are spent largely on a handful of offerings – health insurance, pension plans, disability insurance and life insurance – that do not directly address key concerns. financial support for millions of workers living wage to wage on low or moderate incomes. income (IMT). In fact, many of these workers may not even qualify for these traditional benefits or may not be able to afford them.
Employers have a huge opportunity to recognize and prioritize the urgent financial needs of payroll, IMT workers – with positive outcomes for workers and businesses.
Read more: If you cashed out your retirement plan during COVID, here’s how to rebuild
As widely reported, the Federal Reserve found that nearly 40% of Americans don’t have enough money saved to cover an unexpected $400 expense, a figure that rises to between 60% and 72% for Black, Latino households. and led by women. less than $60,000 per year. During this time, the2021 MetLife Employee Benefits Trend Study indicates that 86% of employees say finances are a major source of stress for them now and in the future, and 27% say they are less productive at work due to financial worries.
These workers live in the financial present, and their most acute financial needs — those that keep them awake at night — are managed month to month, or sometimes day to day. For them, benefits that mitigate income volatility and help them better manage unexpected expenses are the key to reduced stress, better performance, improved productivity and greater loyalty. A solid retirement plan can be nice to have, but more essential offerings can be such as workplace emergency savings plans, pay on demand, emergency cash assistance, loans backed by the employer and even assistance with the repayment of student debt.
Offered together, these innovations can form a suite of “financial security benefits” united by their focus on directly addressing the realities of life from payday to payday. It should be noted that while all benefits have costs, many of these new financial security benefits cost only a fraction of what many companies invest in pensions, health and welfare. -be. Because there isn’t necessarily a one-size-fits-all solution, savvy employers won’t offer a one-size-fits-all approach and it won’t get done; they’ll seek to understand what works for different employee populations, then put together an arsenal of tools to help workers manage financial volatility and respond to financial surprises.
Read more: American workers are in a savings crisis – and employers can help
To help us deepen our understanding of “what works for whom”, Commonwealth is testing the effects of multiple financial benefits on the financial security of gig workers in a pilot program with Gig Wage, Steady and GreenDot. Although gig workers are not employees, many of the financial challenges they face are similar to those faced by employees who live paycheck to paycheck. The pilot focuses on revenue volatility, but the benefits also translate to managing unexpected expenses.
Benefits tested include access to emergency grants, access to low-interest loans, credit building and recurrent allowances, aimed at increasing and stabilizing incomes through transfers direct in cash. We test the effects of these interventions on workers’ financial status, financial well-being, and feelings of agency and optimism, which our research has found to be important for people’s journeys to financial security and opportunity. Findings from this work will add to what we have learned in our extensive work on workplace emergency savings.
One reason to help workers deal with immediate financial issues is to allow them to focus more on the long term. It is difficult for any of us to take advantage of long-term savings options if our daily short-term challenges are not met. In fact, recent research from the Commonwealth and the Defined Contribution Institutional Investment Association found that pension plan participants with emergency savings of over $2,000 were half as likely to have dipped into their retirement savings during the pandemic – and those with little or no liquid savings were more likely to take or plan to take a 401(k) hardship withdrawal, or suspend or reduce contributions to the pension plan.
Read more: How to build financial security and savings for low-income workers
We cannot talk about the financial security of workers without taking wages into account. And yet, while important, higher wages alone aren’t enough to provide financial security for employees. With up to 70% of workers reporting living paycheck to paycheck, it’s clear that employees need both sufficient income and tools to turn income into financial security.
During this competitive hiring market, employers are spending more on salaries and in many cases increasing salaries. Providing financial benefits targeted to the needs of low- and middle-income employees allows that investment in workers to translate into increased financial stability – and therefore, more satisfied and less distracted workers. By enabling financial security with specific and targeted tools, benefits professionals can be an integral part of this change.
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