2016 Workplace Benefits Report - Bank of America Merrill Lynch

RETIREMENT & BENEFIT PLAN SERVICES
2016 Workplace Benefits Report
Empowering and encouraging employees to plan for their financial futures
For plan sponsor use only.
Empowering financial wellness, one habit at a time
We at Bank of America Merrill Lynch are committed to
bringing together employees’ entire financial lives, has the potential to help employees
delivering financial wellness solutions for our clients, and their
strengthen their financial security and to help companies become employers of choice.
employees. This Workplace Benefits Report — the second to
focus on employees — highlights the urgency of this effort.
It shows clearly that employees need education and guidance
to build more secure financial lives, and that employers have an
opportunity to play a critical role in helping them.
We are uniquely positioned to support employees’ financial needs, to integrate benefits
for easier employee access and use, and to implement financial wellness programs.
The insights revealed by this Workplace Benefits Report represent another step forward
in our mission. We’re excited to share the results with you, and to join you in helping your
employees pursue — and achieve — financial wellness.
Our survey finds that employees have lost confidence in their financial well-being during
the past two years.* Across all ages and income levels, employees cite a wide range of
challenges that impede their ability to build financial security, including rising health
care costs, high debt levels and the need to manage many competing financial priorities.
Employees want and need help, and they are looking to employers to provide it.
Employers have a chance to provide much-needed leadership on employee financial
Lorna Sabbia
wellness. We are partnering closely with them in that effort. Offering a holistic range of
Head of Retirement & Personal Wealth Solutions
benefits, education, and support, as part of a comprehensive financial wellness program
Bank of America Merrill Lynch
* For survey methodology, please see back cover.
2016 WORKPLACE BENEFITS REPORT | 1
Employees want help pursuing wellness
Employees show a growing need for help building healthy financial habits.
Our new Workplace Benefits Report survey finds that employees became less certain
about their financial futures between 2013 and 2015. Facing growing uncertainty, market
volatility and financial stress, employees are looking to their companies for help. Our survey
highlights the nature of employees’ struggles and the ways in which employers can support
employees as they work toward greater financial wellness. In particular, our research finds
that employers can play a key role in helping employees build sound financial habits essential
Highlights of key findings:
75%
of employees give responses indicating
that they are not financially secure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 2
60%
report feeling somewhat or very
stressed about their financial situation . . . . . . . . . . . . . . . . . . . . . . . Page 4
55%
want help managing their finances . . . . . . . . . . . . . . . . . . . . . . . . . . . .Page 6
69%
have experienced an increase in health care costs in the
past two years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 10
52%
want employers to provide access to a one-on-one
relationship with a financial professional . . . . . . . . . . . . . . . . . . . . Page 14
for financial security.
At Bank of America Merrill Lynch, we are committed to helping employers and their
employees in this effort. We encourage employers to draw on our research and
insights to gain understanding about the most important trends affecting workplace
benefits programs, and to help employees achieve both short- and long-term
financial success.
2 | 2016 WORKPLACE BENEFITS REPORT
Financial wellness slips
Employees’ responses indicate declines in financial wellness since our 2013 survey. The percentage of participants categorized as
How we measured financial wellness
“Not At All Secure” rose from 31% to 41%.
Our 2013 and 2015 surveys asked employees
10 questions, each covering a different aspect of
their financial lives. They were asked to rate their
The state of financial wellness*
Very Secure
Financially secure
8%
Somewhat
Secure
Not Very
Secure
level of agreement with statements such as
“I am always able to pay my monthly mortgage
or rent,” “I am saving enough for retirement” and
“I am always able to pay for health care costs.”
17%
In each case respondents could choose
responses ranging from a strong positive
(such as “Strongly Agree”) to a strong negative
34%
(“Strongly Disagree”). A respondent received
a point for each question that he or she
Not At All
Secure
41%
Struggling
answered with the most positive response.
Level of wellness was categorized based on the
respondent’s point total. Note that our wellness
*The Financial Wellness Index measures employees’ financial wellness: that is, how well they feel they are
able to meet both future goals and present-day needs. The index is comprised of results from 10 survey
components identified through factor analysis.
The fact that financial wellness did not improve, while the economy did, suggests that external factors alone may have limited
influence in driving wellness improvements.
measure is based entirely on self-reported
sentiment, not on actual financial standing.
8-10 points
Very Secure
5-7 points
Somewhat Secure
2-4 points
Not Very Secure
0-1 point
Not At All Secure
2016 WORKPLACE BENEFITS REPORT | 3
Nearly all components of financial wellness that we measured declined between 2013 and
2015. The largest declines came in response to the following questions:
77%
59%
57%
40%
I am always able to pay
monthly mortgage/rent.
(Response: “Strongly agree”)
I always have money to
spend on basic necessities.
(Response: “Strongly agree”)
48%
38%
I am always able to pay for
health care costs.
(Response: “Strongly agree”)
2013
2015
The only component for which responses improved was, “I am saving enough for my
retirement.” Nineteen percent strongly agreed with this statement, compared with 15% in 2013.
4 | 2016 WORKPLACE BENEFITS REPORT
Uncertainty leads to stress
When we dig deeper into the wellness findings, we discover that the declines in our measure of financial
wellness occurred not because employees’ attitudes about their financial situations turned outright
negative. Rather, employees became much more likely to select the second-most-positive response
instead of the most positive response. We interpret this shift to mean that employees feel less certain
about their finances, even if their actual financial conditions may not have worsened.
Employees’ lack of certainty about their finances seems to manifest itself in high levels of financial
stress. Fully 60% of employees report being “somewhat” or “very” stressed about their financial situation,
up from 50% in 2013.
60%
of employees say they’re somewhat or very stressed.
Only 24% of Millennials, 18% of Gen Xers and
22% of Baby Boomers strongly agree with
the statement “I am in total control of my
financial situation.”
2016 WORKPLACE BENEFITS REPORT | 5
Planning makes the difference
Examining the responses of the most financially well employees, and contrasting them with
These findings suggest that employers who want to cultivate financial wellness should focus
the responses of the least financially well employees, highlights the different habits of
on helping employees build healthy financial habits, particularly with regard to planning.
the two groups and the places where employer assistance could be especially effective.
Employers looking to help their less financially secure employees become more like their
more financially secure employees — and to help reduce employees’ financial stress —
Perhaps the biggest difference between the groups we’ve labeled Very Secure and Not
might consider making financial professionals available, simplifying enrollment in benefits
At All Secure comes down to one word: planning. Very Secure employees appear far more
programs and communicating around tools and resources that can help with planning.
likely than Not At All Secure employees to envision the future and take steps to prepare for
it financially.
Very Secure employees are far more likely than Not At All Secure employees to say they:
Have a firm idea how much savings they’ll need for
retirement (with more realistic estimates of the amount
than other employees).
Have a strategy to spend down savings in retirement
(employees 50 and older).
Think about health savings accounts (HSAs) as
long-term medical savings vehicles.
71%
7%
69%
18%
64%
29%
Very Secure
Not At All Secure
6 | 2016 WORKPLACE BENEFITS REPORT
Employees need day-to-day assistance
Before they can plan for the future, employees need to manage their finances today. Employees’ responses show that they are struggling to juggle competing financial
priorities, and in many cases are sacrificing the future to make ends meet.
Nearly
3 in 10
— including almost 4 in 10
Millennials — say they have an
unmanageable amount of debt.
80%
say being away from work for three
months would be either difficult or a major
crisis, up from 76% two years earlier.
77%
of employees experiencing an increase in health care
costs are saving less for retirement as a result,
compared to 56% in 2013 (see Health Care Costs,
Trade-Offs and Solutions, page 10).
Employers can help. Fully 55% of employees agreed with the statement “I need help managing my finances.” Employers can provide resources that help
employees improve their understanding of their overall financial lives, enabling them to set sound priorities and allocate their resources more wisely. (For information
about the kinds of assistance employees are looking for, see Helping Employees Take Charge on page 14.)
2016 WORKPLACE BENEFITS REPORT | 7
Retirement savings assumptions look too rosy
Nearly two-thirds of employees say they have increased their focus on retirement planning and saving. Most (70%)
say they have at least a pretty good idea how much money they need to save in order to maintain the lifestyle they
want in retirement. Although that confidence about savings goals may seem encouraging, employers shouldn’t take
it at face value. For many employees, their confidence about retirement savings estimates appears to be rooted in
unrealistic ideas about how much savings will be enough.
Four in ten employees think they’ll need less than $500,000 in retirement savings. However, we project that health
care costs alone could add up to 80% of that amount for an average couple.
Unrealistic savings assumptions
61%
say they’ll need less than $1 million.
40%
say they’ll need less than $500,000 in assets.
$400,000
$1M in retirement savings
only
Projected health care costs in retirement
for a healthy couple retiring at 65*
$40,000 of annual income**
* Source: HealthView Services 2015 Retirement Health Care Cost Data Report.
Includes Medicare B, D and Supplemental Insurance and expected dental, vision, hearing, co-pays and all other out-of-pocket
costs for healthy couple retiring today.
**If withdrawing at a 4% rate
8 | 2016 WORKPLACE BENEFITS REPORT
A need for retirement income plans
Employees’ confidence about their retirement savings needs seems to reflect unrealistic
age 50 or older have a plan to manage and spend down their assets during retirement
optimism, rather than a rational, well-considered understanding of the actual savings required.
(excluding respondents who said they intend never to retire).
One exception: Employees who scored as Very Secure gave much higher estimates. Some
For employees to make a successful transition from accumulation of savings to distribution
61% said they’ll need at least $1 million, and 28% said they expect to need $2 million or
of income, many more will need to consider their income needs and create a road map for
more. These figures suggest that more Very Secure employees may have done the planning
managing their day-to-day and future finances. Very Secure employees were much more
necessary to develop reasonable savings targets.
likely to report planning, with 69% of those 50 or older saying they have a plan to spend
We found a lack of planning overall with respect to income in retirement. Although 66% of
employees say they are worried about outliving their assets, only 36% of survey respondents
down their savings in retirement.
2016 WORKPLACE BENEFITS REPORT | 9
Help employees understand their needs and options
Employers can help employees better understand their savings needs and make the most of
More than two-thirds of employees say their
retirement savings plan at work will be their
largest or second-largest source of retirement income.
their options by:
• Adopting plan designs with automatic features, higher default contribution levels and a
company match structure to encourage greater saving.
• Communicating comprehensively around benefits plans.
• Offering greater access to education, guidance and planning assistance at the workplace,
through financial wellness specialists.
The lack of decumulation strategies also indicates a need for planning help. Helping
employees think about both accumulation and distribution as part of one process, rather
than separate tasks, may help them feel better prepared to retire, resulting in direct, positive
repercussions for employers. Employers can supplement educational efforts by providing
access to financial professionals who can help employees develop retirement income
strategies, and possibly by offering retirement income solutions within their plans.
10 | 2016 WORKPLACE BENEFITS REPORT
Health care costs, trade-offs and solutions
Employees continue to face higher health care costs. Those increases are eroding their ability to take actions that enhance financial wellness,
in particular saving for retirement and paying down debt.
Health care costs
CONTINUE TO RISE
Nearly
7 in 10
employees indicate that they have experienced an
increase in health care costs over the past two years.
23%
Employees are saving
SIGNIFICANTLY LESS
say they are saving
significantly less
for retirement.
77%
of employees who have experienced an increase in health care costs
indicate that they are saving less for retirement as a result.
50%
of those who are saving or spending less
say they are paying down less debt.
2016 WORKPLACE BENEFITS REPORT | 11
These findings highlight that any effort to support employees’ financial wellness must
consider their financial lives holistically. For example, to take full advantage of their
retirement plans’ potential, employees must be able to contribute enough — and doing so
will require help managing health care costs and other aspects of their financial lives.
A Health Savings Account (HSA) is one tool that can help manage health care costs. One
of the encouraging findings of the study is that the percentage of employees saying
they participate in HSAs grew by almost half since 2013. One reason for the increase in
participation: More employers are making HSAs available.
HSA participation on the rise
2013
+16
percentage
points
38%
2015
54%
INCREASE
Health care cost increases are another reason for the rise in participation. Some 46% of
employees say they have started or increased use of HSAs or Flexible Savings Accounts
(FSAs) in response to higher medical costs.
12 | 2016 WORKPLACE BENEFITS REPORT
2016 WORKPLACE BENEFITS REPORT | 13
Financial wellness must include health care
Saving for retirement medical costs is of paramount importance. HSAs offer a powerful
Providing a financial wellness program that addresses a person’s whole financial picture can
way to prepare for retirement medical costs by providing pre-tax contributions and tax-free
help employers address the trouble spots that inhibit employees’ ability to build financial
withdrawals for medical costs. Yet many employees who participate in the accounts are not
security. The rising cost of health care clearly is one of those trouble spots. Offering access
using them as long-term savings accounts.
to financial education, guidance and planning resources may help employees better balance
Approximately half of plan participants who currently participate in the accounts use them
to cover short-term health expenses, rather than setting those funds aside for long-term
their short-term needs, such as current medical bills, with long-term needs, such as health
care spending in retirement.
health care needs. They may need to use the funds in the accounts to pay current medical
Employers also may want to examine the ways they communicate around benefits. In the
expenses; alternatively, some employees may not know that money in HSAs can be set aside
case of HSAs, education efforts and other communications may focus on helping employees
for the long term.
better understand the connection between the accounts and other long-term savings
accounts, such as 401(k) plans.
A short-sighted take on HSAs
53%
of HSA participants consider them
short-term health savings vehicles.
43%
consider them long-term health
savings vehicles.
14 | 2016 WORKPLACE BENEFITS REPORT
Helping employees take charge
Employees overwhelmingly look to their employers for help managing their financial situation.
All generations want one-on-one help
Yet 59% say they need help understanding how those benefits can work for them.
83%
of employees agree with the
statement “The financial benefits
offered by my employer are critical
to my financial security.”
54% 55%
65%
48%
56%
42%
One-on-one access to a financial professional is a powerful tool to help employees plan
their financial futures, and employees of all ages say they want it. In fact, the percentage
of employees saying that they want online tools (54%) was statistically identical to
the percentage saying they want access to a one-on-one relationship with a financial
professional (52%). Although digital tools may be convenient to provide and easy to access,
a combination of digital tools and personal guidance, designed to work together and
reinforce each other, is likely to prove more effective at supporting financial wellness.
Access to a one-on-one relationship
with a financial professional.
Comfortable using online tools.
Millennials
Gen Xers
Baby Boomers
2016 WORKPLACE BENEFITS REPORT | 15
We also sought to identify the impediments that block employees from taking full
advantage of the financial management assistance offered by their employers. By far the
most common barrier relates to privacy. Nearly half of employees who aren’t comfortable
seeking financial management help from their employer say the primary reason is a desire
Privacy concerns
47%
Main concern is keeping personal financial life separate from
work life (among employees who aren’t comfortable seeking financial
management help from their employer).
to keep their personal financial life separate from their work life.
Employees’ reluctance to share information results in an interesting dynamic, in which
employees overwhelmingly want employers to help, but in many cases are afraid to ask.
A financial wellness program that is accompanied by strong communication and provided
by a well-regarded organization may help alleviate employees’ privacy concerns.
It is clear that employers play a critical role in helping their employees achieve financial
security — not just through salaries, health insurance and retirement plans, but through
a broad range of assistance.
16 | 2016 WORKPLACE BENEFITS REPORT
Incentives drive awareness of wellness programs
Awareness of financial wellness programs seems to be lagging their availability.
Incentives appear to help increase awareness. Almost all employees (97%) of firms that
offer financial wellness incentives say the incentives are at least somewhat effective.
Low awareness of financial wellness programs
31%
of employees of large firms don’t know if their employer has a
financial wellness program.
36%
48%
of employees of large firms say
their employer offers a financial
wellness program.
of large employers said they
had a financial wellness
program in place.
Employees seem much more convinced than employers about incentives: 70% of
employers surveyed for the 2015 WBR indicated that they felt incentives were effective.
Incentives work, employees say
97%
of employees whose
firm offers financial
wellness incentives
feel these incentives
have been at least
somewhat effective.
70%
of employers feel
incentives are effective
(2015 WBR).
2016 WORKPLACE BENEFITS REPORT | 17
Incentives work
When asked what incentives they want their companies to offer,
employees of firms with wellness programs favored:
63%
Additional contributions to employees’ 401(k)s/HSAs
55%
Cash incentives
Financial wellness programs can’t live up to their potential if employees aren’t aware of
them. The results of our survey indicate that incentives may be useful to drive employee
awareness of these programs, helping to realize that potential. Incentives may be used in
conjunction with other tools, including promotions, seminars and one-on-one meetings
and communications.
48%
Discounts on health insurance premiums/other products
18 | 2016 WORKPLACE BENEFITS REPORT
Conclusion
Employees are struggling to manage their financial lives. They spend much of their time at
Bank of America Merrill Lynch can assist employers in this effort by offering a financial
work, so it’s natural for them to look to their employers for help.
wellness program with a more comprehensive range of benefits, from retirement plans to
To capture the advantages of greater employee financial wellness —
­ potentially including
happier, less-stressed and more-productive workers ­— benefits programs should aim
to address all aspects of employees’ financial lives. Success will require an ongoing
Health Savings Accounts to access to one-on-one guidance from financial professionals.
The mix of programs can be tailored to meet the needs of employees at all life stages and
life events.
commitment to helping employees balance competing priorities and plan for the future, as
Our benefits professionals are available to help you develop a financial wellness program
well as a culture that makes it okay for employees to ask for help. Offering a complementary,
for your company, and to engage and support your employees around their benefits —
holistic mix of resources, including digital tools, educational campaigns and access to one-
ultimately helping companies become employers of choice by supporting their employees’
on-one relationships with financial professionals, is likely to be the most powerful way to
financial well-being.
provide the support employees need.
2016 WORKPLACE BENEFITS REPORT | 19
At Bank of America Merrill Lynch, our mission
is to work with employers to help employees
live their best financial lives.
For more information about how we
can help your company and its employees
with workplace benefits, contact
your Bank of America Merrill Lynch
representative or call 1.877.902.8730.
Visit us online at benefitplans.baml.com
or email us at benefitplans@baml.com.
About the Workplace Benefits Report
Methodology: Boston Research Technologies conducted an online survey with a
This report is designed to provide general information for plan fiduciaries to assist
national sample of 1,227* employees between October 27 and November 11, 2015,
with planning strategies for their retirement plan and is for discussion purposes
on behalf of Bank of America Merrill Lynch. To qualify for the survey, employees had
only. Bank of America is prohibited by law from giving legal or tax advice, and
to be current participants in a 401(k) plan; the plan did not have to be provided by
recommends consulting with an independent actuary, attorney and/or tax advisor
Bank of America Merrill Lynch. Bank of America Merrill Lynch was not identified as
before making any changes.
the sponsor of the study.
Respondent demographics broke down as follows:
Male: 45%
Female: 55%
Millennial: (total number) 359
Generation X: 459
Baby Boomer: 408
*The total number of respondents exceeds the sum of Millennials, Generation X and Baby Boomers
because one respondent was older than the Baby Boomer age cutoff.
Bank of America Merrill Lynch is a marketing name for the Retirement Services business of Bank of America Corporation (“BofA Corp.”). Banking activities may be performed by wholly owned
banking affiliates of BofA Corp., including Bank of America, N.A., member FDIC. Brokerage services may be performed by wholly owned brokerage affiliates of BofA Corp., including Merrill Lynch,
Pierce, Fenner & Smith Incorporated (“MLPF&S”), a registered broker-dealer and member SIPC.
Investment products:
Are Not FDIC Insured
Are Not Bank Guaranteed
© 2016 Bank of America Corporation. All rights reserved. | ARJSKHTH | 04/2016
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