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A new retirement mindset: 4 solutions to help employees rethink retirement planning

When it comes to retirement saving, a workplace retirement plan is foundational – yet isn’t the only tool in the toolbox. Here are some strategies to help plan sponsors build a connected benefits offering that expands the ways employees think about and save for retirement.

It’s time for a refresh – a new retirement mindset. This involves transitioning the way employees view and manage their entire suite of workplace benefits and savings options. While a retirement account will continue to be a key financial asset, it’s increasingly important for employees to take full advantage of all their employer-offered solutions to achieve optimal financial outcomes and consider how they play in concert with each other. Because decisions about any number of benefits can affect retirement – either positively or negatively.

Employees are looking to their employers for advice on how to best select and use their workplace benefits. In fact, 78% of employees rate their employer as a trusted source of information for their employee benefit decisions, according to Voya research.1

Summary:

Employers play a key role in supporting employee financial wellness – and they’re in a prime position to facilitate a mind shift. Let’s take a closer look at four solutions to help employees achieve a new retirement mindset – and a more secure financial future:

  1. Connect health care expenses to employee retirement outcomes
  2. Educate employees about missed retirement savings by being over/underinsured
  3. Help employees understand how much they need to save
  4. Fix the disconnect – encourage employees to see their benefits and savings holistically

1. Connect health care expenses to employee retirement outcomes

Medical expenses have the potential to significantly affect overall financial health and retirement readiness. For example, 67% of bankruptcies are caused by medical expenses2 and 1/3 of retirement plan hardship withdrawals are for unreimbursed medical expenses.3

However, only 36% of employees know how much they’ll need for health care expenses in retirement.4 What’s more, health care availability and affordability has topped the list of American’ worries for the fifth straight year.5

Clearly, Americans are concerned about health care costs, but may not realize the true financial impact on their retirement. They may be planning to use their retirement plan balance or other savings to cover their future expenses. Health Savings Accounts (HSAs) are another financial tool they can use for eligible medical expenses if they have a high deductible health care plan.

An HSA is the only account where employees can enjoy tax savings on contributions (including payroll-tax savings on pre-tax payroll deductions to fund their accounts), any interest earnings on those contributions, and distributions for qualified medical expenses. Unspent balances roll over from year to year (tax free) and can be invested once it reaches a certain threshold.

According to Voya research, only 2% of HSA accountholders understand the features and benefits of their account.6 And on average, 96% of annual HSA contributions are spent on qualified expenses during the plan year.7 HSAs are clearly underutilized as a long-term retirement savings tool.

Solutions:

  • Employers have an opportunity to educate employees and shift the way HSAs are viewed and used. So, more take advantage of the benefit and save, invest and grow the account balance to cover health care costs in retirement, if they don’t need the funds to cover today’s qualified expenses.
  • Employer contributions are an important element to a successful HSA program too, especially during the first years after introduction – to incent employees to get started and help build their account balances.
  • Using HSAs along with supplemental insurance benefits and disability income coverage can also help employees pay the out of pocket expenses that can result from a covered event now and preserve their HSA balance for health care costs down the road and into retirement.

2. Educate employees about missed retirement savings by being over/underinsured

When employees select their health insurance coverage each year, it needs to be just right, not too much and not too little – like in the classic “Goldilocks and the Three Bears” fairy tale. Which means they could miss out on retirement savings if they’re either over or underinsured.

Overinsured

When employees are overinsured, they have more insurance than necessary or are paying more for coverage than required. If an employee opts for Preferred Provider Organization (PPO) coverage when they’re best suited with a high deductible health plan (HDHP), they may be overpaying for coverage.

To understand the financial effects of enrolling in a plan that isn’t the right fit, Voya teamed up with SAVVI Financial, a leading technology-enabled financial wellness platform, who conducted an analysis using a national database of claims information provided by the U.S. Agency for Healthcare Research and Quality.

According to the analysis,8 a majority of the U.S. population in 2018 would have spent less on health care costs9 by choosing an HDHP across a variety of age ranges. The analysis also showed the average amount individuals would have saved annually9 by choosing an HDHP over a PPO plan:

Average HDHP savings9

  • Ages 25-34: $566
  • Ages 35-44: $481
  • Ages 45-54: $395
  • Ages 55-64: $326

The real cost comes in the form of opportunity cost. The money spent on being overinsured could be redirected toward retirement plan savings, growing an emergency fund, purchasing additional supplementary insurance, or increasing HSA contributions. But only 36% of participants report being confident about prioritizing where to put their next dollar saved.10

If employees trade overspending on health care with saving for retirement, the results could be powerful. For example, a 40-year-old employee could have $27,973 more at retirement in 25 years – if they spent $481 less on health care costs each year with an HDHP and made pre-tax contributions toward retirement instead, assuming a 6% return with 0% employer match and a lump-sum withdrawal in retirement.11

Underinsured

Being underinsured potentially poses a greater risk to employee financial security. According to a 2019 Biennial Health Insurance Survey released by the Commonwealth Fund, almost 30% of Americans were underinsured.12 Underinsured employees are those who generally have high health insurance deductibles and high out-of-pocket medical expenses relative to their income. As a result, these employees could be financially impacted long term.

Solutions:

  • Employers can help employees choose the right health insurance plan for them with on-going benefits education beyond open enrollment – and by offering access to benefit decision support tools. Seventy-three percent of employees are interested in guidance and support tools that would help them understand how much money to put aside for retirement, emergency savings and health care expenses.13
  • Voya’s new integrated and holistic benefits selection experience – myHealth&WealthTM – offers personalized digital guidance to help employees optimize their household spending across health insurance benefits, emergency savings and saving for retirement. 
  • Those who used myHealth&Wealth had a better understanding of the trade-offs between their health insurance premium costs and other uses for each next dollar. This knowledge helped them make more educated decisions when choosing a health insurance plan for their needs.

3. Help employees understand how much they need to save

In general, American workers are undersaved for retirement – a major contributor is the lack of emergency savings. This is not surprising, given 36% of participants are not confident about how much to save for unexpected emergencies.10

According to data from EBRI’s 2020 Retirement Confidence Survey, a sizable percentage of workers have just a small amount saved for the future.14 Among survey respondents providing this type of information, 35% report that the total value of their savings and investments, excluding the value of their primary home, is less than $25,000.14 This includes 18% who say they have less than $1,000 in savings.14

Employees who do not have adequate emergency savings are also 30% more likely to decrease their retirement contribution rates, according to Voya internal data.15 Not only that, 3 in 10 say they worry every day or almost every day about their ability to save for retirement.16

Solutions:

  • Employees need guidance on how much to save – for both retirement and unexpected emergencies. And the good news for employers is that three out of every four workers expressed some level of interest in holistic financial guidance and advice.17
  • By offering an employee benefits and savings experience that includes financial guidance, employers can more easily manage their benefits and better see the ROI. At the same time, employees can make smarter decisions that take into account the full picture across their benefits and savings offerings. Eighty-four percent of employees also say they would value a financial advice benefit from their employer.18
  • Employers can also consider rounding out their benefits package with an Emergency Savings Solution to help employees save – and perhaps keep them from dipping in their retirement savings if something happens. Which leads to one more way, and perhaps the most important, employers can help employees expand the way they think about retirement saving.

4. Fix the disconnect – encourage employees to see their benefits and savings holistically

The need to harmonize workplace benefits couldn’t be greater. Employees need help deciding where to allocate benefit dollars because the suboptimal allocation of benefits funds could lead to less optimal financial outcomes, including delayed retirement. The solution is to connect the unconnected and provide a more holistic view, which underscores the premise of the new retirement mindset.

Solutions:

  • At Voya, we recognize the need for the convergence of workplace benefits and savings and are taking steps to help employers and their employees gain a new perspective now and into retirement.
  • Our comprehensive Workplace Savings Solution offers connected value across savings vehicles such as HSAs – along with holistic guidance to optimize savings for health care expenses, emergencies and retirement. It also features a single digital view and one password across Voya’s retirement plans, HSAs and Nonqualified Deferred Compensation (NQDC) plans. (It’s important to note that 77% of NQDC plan participants cite the plans as a reason for staying with their employer.19)
  • We take it a step further bringing emergency savings and a holistic guidance digital tool to round out the connected savings possibilities.

Conclusion

There’s great opportunity for employers to drive deeper engagement and better decision making – to help employees financially optimize their benefits and look holistically at their benefits spend across all available benefits and their household.

There are several benefits when employers help their employees rethink how to prepare for the unexpected and see the interconnection of their workplace benefits and savings decisions. This can help maximize the value of a benefits program and save time and energy for everyone with a more simplified experience. Plus, have the potential to improve employee retirement outcomes.

Find out how you can get your workplace benefits and savings in sync or contact your Voya representative.

This is the second article in a three-part series where we explore how employers can create more value for employees by connecting the unconnected when it comes to benefits and savings needs in the workplace.

Read the other articles in this series:

  1. Voya Consumer Insights Team, Plan Participant Survey, Jan. 2020.
  2. “Medical Bankruptcy: Still Common Despite the Affordable Care Act.” ncbi.nlm.nih.gov, American Journal of Public Health, March 2019.
  3. Voya Internal Data for 12-month period ending 6/30/2019.
  4. “The U.S. Healthcare Cost Crisis.” West Health-Gallup, news.gallup.com, 2019.
  5. Norman, Jim. “Healthcare Once Again Tops List of Americans’ Worries.” news.gallup.com, April 1, 2019.
  6. Voya Consumer Insights and Research Team, Health Plan Research, Understanding the selection and decision-making process, October 9, 2020. Base: n=315.
  7. Leonhardt, Megan. “Americans are spending down their annual HAS dollars, using most of it just to see doctors.” cnbc.com, January 23, 2020.
  8. The plan designs in this analysis were based the Kaiser Family Foundation’s Employer Health Benefits 2020 Annual Survey, which includes data from 2018. This analysis is focused on individuals and individual plan designs, and the HDHP included employer contributions to an HSA that were also based on averages from Kaiser Family Foundation. Results are directional, highlighting a general trend; whether this trend can be replicated within an employer group will depend on the group’s plan design.
  9. Costs for a PPO plan are calculated as premiums plus out of pocket costs, less federal tax savings from contributing to an FSA to pay out of pocket costs up to current contribution limits. Costs for an HDHP plan are calculated as premiums, plus out of pocket costs, less average employer HSA contribution, less federal tax savings from contributing to an HSA to pay out of pocket costs up to current contribution limits to the extent these quantities exceed employer contribution. Federal tax savings for FSA and HSA are calculated corresponding to a 22% marginal federal bracket and 7.65% FICA payroll tax.
  10. Based on results of a Voya Financial survey conducted through AYTM – Ask Your Target Market online research platform between Jan. 18-26, 2021, among n=750 Americans age 18+ who are full-time employees and actively contributing to their employer-sponsored retirement plan, balanced by age and gender to reflect the U.S. population.
  11. For illustrative purposes only. Assumes annual contributions of $617 to a pre-tax account (which correlates to an after-tax amount of $481 assuming a 22% federal marginal bracket); 6% return on investment, interest compounded annually, no withdrawals; contributions are made and invested at the beginning of each year for 25 years. Does not consider any applicable reduction in payroll tax or FICA if HSA contributions. Does not consider state tax implications. Amounts shown for 100% employer match assume a $617 employer match is received and invested at the beginning of each year. Total amount accumulated after 25 years with 0% employer match equals $35,863. Lump sum withdrawal after 25 years at assumed retirement age of 65, with 22% effective federal tax rate assumed at time of withdrawal, for after-tax value of $27,973 for the 0% employer match accumulation example shown. Assumes funds distributed in this way from an HSA are not used for qualified medical spending which would lead to a reduction in tax. This hypothetical example does not predict or project the performance of any particular investment or investment strategy, does not reflect actual client accounts or experiences, and is not a guarantee of future results. The illustration does not consider investment fees or expenses that would lower performance. Actual rates of return will fluctuate.
  12. “Underinsured Rate Rose From 2014-2018, With Greatest Growth Among People in Employer Health Plans.” The Commonwealth Fund press release, commonwealthfund.org, February 7, 2019.
  13. Based on the results of a Voya Financial survey conducted through Ipsos on the Ipsos eNation omnibus online platform among 1,005 adults aged 18+ in the U.S. (featuring 294 people who are currently working and benefits-eligible). Research was conducted Dec. 17-18, 2020.
  14. EBRI/Greenwald Retirement Confidence Survey, 2020.
  15. Voya internal data, October 2020.
  16. Menasce Horowitz, Juliana; Brown, Amy; and Minkin, Rachel. “A Year Into the Pandemic, Long-Term Financial Impact Weighs Heavily on Many Americans.” Pew Research Center, pewresearch.org, May 5, 2021.
  17. 9th Annual Survey of Retirement Plan Participants, American Century Investments by Mathew Greenwald, 2021.
  18. “Closing the Financial Advice Gap.” Edelman Financial Engines® white paper, second issue, 2019.
  19. Andrus, Danielle. “NQDC Plans Give 401(k) Sponsors a Competitive Edge.” 401(k) Specialist, December 10, 2020.

Health Savings and Spending Accounts offered by Voya Benefits Company, LLC (in New York, doing business as Voya BC, LLC) are administered by WEX Health, Inc. (“WEX Health”). Investments are not FDIC Insured, are not guaranteed by Voya and may lose value. All investing inherently involves risks of fluctuating prices and the uncertainties of return and yield. All security transactions involve substantial risk of loss.

The myHealth&Wealth tool provides information and options for your consideration regarding, among other things, Supplemental Health insurance policies. Because Voya sells Supplemental Health insurance policies as part of its overall Health Solutions business, you should consider the conflict of Voya’s ownership interest in SAVVI when considering the Supplemental Health insurance policies myHealth&Wealth highlights for your consideration. You are under no obligation to purchase any benefits highlighted by the myHealth&Wealth tool, and most such benefits can be purchased or excluded on an individual basis. You are not required to purchase Supplemental Health insurance to enroll in healthcare coverage.

Voya also offers retirement products as part of its Wealth Solutions line of business. You should also consider the conflict of Voya’s ownership interest in SAVVI when reviewing the contribution calculations made by the myHealth&Wealth tool in connection with your retirement savings options. You are not obligated to make any such contribution.

The myHealth&Wealth tool provides information and options for you to consider in making healthcare, health savings, emergency savings, and retirement savings choices. Those choices are solely up to you to make. myHealth&Wealth does not provide you with fiduciary advice with respect to your plan elections and contributions. None of SAVVI, Voya, nor WEX Health acts in a fiduciary capacity in providing myHealth&Wealth or other services to you; any such fiduciary capacity is explicitly disclaimed.

Products and services offered through the Voya® family of companies.

This material is provided for general and educational purposes only; it is not intended to provide legal, tax or investment advice. All investments are subject to risk. Please consult an independent legal or financial advisor for specific advice about your individual situation.


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