Financial Planning, Retirement, Small Business

Sources Of Stress For Plan Sponsors

7/12/16 8:00 AM

iStock_000006080713_Small-2.jpgThe American Psychological Association (APA) calculated that stress in the workplace costs U.S. businesses $300 billion annually in the forms of avoidable turnover, reduced worker productivity, and higher medical expenses. Financial worries are often a major source of employee stress, and a recent study conducted by Financial Finesse found that a quarter of surveyed American workers reported that they are currently suffering from “high” or “overwhelming” levels of financial stress, and 60 percent said that they have at least some level of financial stress at the moment. Other estimates suggest that the per-employee cost of financial stress in the workplace for employers can be as high as $15,000 each year, and it is therefore unsurprising that most businesses want to reduce stress in the workplace wherever possible. One of the more popular ways to go about doing this is to provide employees with access to a 401(k) retirement savings plan that can help them prepare for their financial future.

Although having a 401(k) can definitely alleviate some of workers’ money-related worries, sponsoring and managing such a retirement benefit can actually be a source of stress for their employers. At least that is what a new report from Willis Towers Watson suggests, which found that surveyed plan sponsors currently have a wide array of issues that they are concerned about. For starters, most employers recognize that they will have to offer a competitive retirement benefit in order to attract and retain talent. One of the key attributes of a quality retirement plan is benefit adequacy, i.e. the plan's ability to help participants achieve financial security in old age. Thirty-nine percent of surveyed sponsors, though, said that they are already worried that their workers will be unable to retire in a timely fashion. Roughly half of sponsors also said that managing investment volatility is a plan-related risk that they are worried about right now, and understandably a large majority of respondents reported that they regularly engage third-party advisors to assist with the investment decisions related to their plans.

Regulatory compliance was found to be another a major concern for 47 percent of surveyed plan sponsors, not surprising since nearly a third of respondents reported that over the past two years they had their retirement plan audited by the Internal Revenue Service (IRS) or Department of Labor (DOL). Fifty-eight percent of respondents said that they have conducted a review of operational compliance for their defined contribution plan in the last two years, and two-thirds of sponsors who cited regulatory compliance as their number one risk at the moment reported doing the same. David Speier, a senior retirement consultant at Willis Towers Watson, added that “There is room for a fair number of employers to improve the management of [regulatory compliance] risk. Proactive reviews of plan operations and compliance processes, for example, should be given a much higher priority at organizations that do not have a structure in place to conduct proactive reviews.” Other plan-related issues that surveyed sponsors said they are currently worried about include retirement benefit costs (49 percent), unanticipated expenses or funding requirements (27 percent), vendor service quality (23 percent), administrative failures (19 percent), and inefficient plan design (8 percent).



Sources: APA, Financial Finesse, SHRM, Willis Towers Watson

Post author: Charles Couch