Employers offer retirement programs to support employees’ financial wellbeing, which may also include a match, educational support, and other features intended to improve their financial lives.
But with 70% of employees living paycheck to paycheck, most employees can’t prioritize a goal in the far-off future. They’re struggling with financial pressures in the here and now.
New research from Commonwealth makes this disconnect clear: though 83% of low- to moderate-income employees are offered a retirement plan, only 52% are enrolled.
For employers, this gap will undermine the value and potential ROI of even the most robust and well-designed retirement benefits until employees get help with everyday money problems, financial emergencies, debt, student loans, savings, and low credit scores.
Consider the many financial barriers working Americans face each day
Even the best-designed retirement plan assumes a baseline level of financial health. Unfortunately, 70% of employees are not financially healthy. In addition:
59% don’t have access to cash or savings to cover a $1,000 emergency expense
24% have no emergency savings
46% carry a credit card balance from month to month
45% accrued credit card debt to cover an emergency or everyday expenses
23% don’t think they’ll ever be able to pay off their debt
Not surprisingly, employees with high credit card utilization are also less likely to have money saved in their workplace retirement account.
4 ways poor financial health erodes the value of your retirement benefit
1. Employees don’t see the benefit of your offering
More than half of U.S. households have no dedicated retirement savings. When employees have day-to-day financial struggles, contributing to a 401(k) is out of reach. Depending on your retirement program, this can mean unused match dollars, underutilized programs, and an overall benefits strategy that’s falling short.
2. Employees tap into retirement savings during tough times
The percentage of participants using hardship withdrawals has increased steadily since 2020, rising from 1.7% to last year’s 4.8%. Without emergency savings, safe employee loans or other affordable borrowing options, or knowing how to access free resources such as an employer hardship fund for urgent situations, employees take money from their 401(k).
Not only did 37% of employees tap into retirement savings to pay for a home or car repair this year, 32% say they’ll do the same next year if they need to cover unexpected expenses.
When employees drain their retirement accounts to deal with today’s financial demands, it undermines the very outcomes your investment was meant to support, including retention and workforce planning.
3. They miss employer match opportunities
When employees can’t afford to contribute to their 401(k), they miss out on one of the most valuable parts of their benefits package: the employer match. For the employee, that’s lost compensation, lost savings, and lost momentum toward financial security.
When match dollars go unused, what should be a high-impact benefit is a lost opportunity to strengthen your total rewards package.
4. Their ongoing financial stress drives up other costs
Financial stress is tied to higher healthcare costs, increased absenteeism, and turnover. Nearly 80% of U.S. employers say employees’ financial stress negatively impacts operations – but retirement benefits aren’t built to address the key drivers of it.
These include living paycheck to paycheck, having debt, poor credit, no savings, and limited borrowing options. Any employer not directly addressing these needs is paying the consequences.
Bridging theory to reality: Brightside stories
Poor financial health isn’t solved by a traditional financial wellness approach or any combination of self-serve tools, coaching, planning, financial education, or a retirement solution. It’s solved with:
- Non-judgmental and unbiased Financial Assistants who help find the employees’ best options for their challenges, including free and low-cost solutions they won’t find on their own, existing employer benefits, and ideally, options that also put extra money into their pockets.
Support that removes barriers and makes it easy for employees to take steps that address their immediate challenges, improve their financial stability, and financial health.
That’s Brightside Financial Care – and it’s how we meaningfully improve employees’ financial lives. We’re not a replacement for your current retirement plan. We are an integrated partner who helps employees achieve the financial wellbeing needed to participate in your retirement plan and see its value, along with the other benefits you offer.
How Financial Care helped Ariel start contributing to her retirement plan
Ariel had more than $10,000 in high-interest debt spread across 11 accounts, had no savings, a low credit score, and was struggling to make ends meet.
Her Brightside Financial Assistant connected her with one of Brightside’s vetted debt management partners who:
- Lowered her interest rate to under 10%
- Helped her enter into a plan to pay off her debt in five years (compared to the decades it would have taken)
- Lowered her total monthly payment amount
- Saved her nearly $25,000 in interest and fees
With her debt burdens eased, Ariel had the financial breathing room to build emergency savings automatically from each paycheck with her free Brightside Savings Account. She also started contributing to her employer’s retirement plan and got the benefit of the match it offered.
How Financial Care helped Shely avoid taking a 401(k) loan
When Shely turned to an online loan to pay for unexpected car repairs and a failed refrigerator because her credit cards were maxed out, the high interest rate quickly ballooned her total debt to more than $45,000. She was about to tap into her 401(k) in an attempt to get some of her debt under control.
When she contacted her Brightside Financial Assistant, the pair explored all of Shely’s options. Instead of withdrawing money from retirement, Shely chose to consolidate her debt with one of Brightside’s partners which:
Reduced her debt interest rate to less than 10%, without harming her credit score
Lowered her required monthly payments and paid her debt off in five years
Saved her over $63,000 in interest and fees
As importantly, her retirement savings remained untouched, so she avoided fees and penalties, and will continue to build longer-term financial security.
Reorienting your benefit strategy: from offering retirement to unlocking it
If you want your retirement plan to be an impactful benefit, your employees must have help and solutions that remove the barriers holding them back today.
When one Fortune 10 employer noticed its employees were routinely tapping their 401(k) just to get by, they partnered with Brightside to reduce that leakage and improve their financial wellbeing.
The result? A 5% reduction in hardship withdrawals — far surpassing the employer’s expectations.
Schedule a demo to learn more about how Brightside Financial Care is the only benefit built to meaningfully improve your employees’ financial health as well as the value they – and your organization – see from all of your other benefits