A recent article in Employee Benefits News outlined the three economic challenges to American workers: inflation, market volatility, and rising interest rates. Employers can use benefit accounts to help employees address these concerns.
Challenge #1: Inflation
The Consumer Price Index (CPI) rose 7.7% overall between October 2021 and October 2022. Increases occurred year over year (YOY) in every category the CPI measures, including fuel oil (68.5%), natural gas (20.0%), gasoline (17.5%), transportation services (15.2%), and groceries (12.4%), among others.
In addition, many consumer products are experiencing shrinkflation, in which manufacturers deal with inflationary pressures by reducing product volume or quantity rather than increasing the price. Major-brand YOY shrinkflation examples include 51 oz. canisters of ground coffee now containing 43.5 oz., 65-count facial tissue now 60-count, and 18 oz. bags of potato chips now 15.5 oz.
How Employers Can Help
Employers can help their workforces cope with these economic pressures by offering selected benefit accounts. Here are a few examples:
- Commuter/Transit Accounts: These benefit accounts let employees set aside pre-tax funds to pay for mass transit, rideshare, vanpool expenses, and parking fees, saving an average of 30% through a reduction in payroll taxes. This could be a better option for workers struggling to pay higher gasoline prices in areas served by train, bus, rideshare, or vanpool service, as well as those who drive but have to pay for parking.
- Healthcare Spending Accounts, including FSA and HSA: By setting aside funds pre-tax, employees can pay for qualified healthcare expenses and save an average of 30% through a payroll tax deduction. Qualified expenses include co-pays, deductibles, co-insurance, many over-the-counter products, dental care, vision care, and more.
- Dependent Care Spending Accounts: Employees set aside pre-tax funds in these benefit accounts to pay for daycare, before- and after-school care, and day camp for children 12 and younger. Elder daycare is also eligible.
- Lifestyle Spending Accounts: Funded by the employer, LSAs can be offered to help employees access selected products and services. The employer chooses what’s eligible and how employees are reimbursed. Employers use these benefit accounts to provide physical, mental, emotional, and financial well-being benefits. They can also use them to help employees experiencing natural disasters or similar.
Challenge #2: Market Volatility
Because investment markets always hold some risk, most investors choose plans that balance a comfortable level of risk with desired rewards. Periods of market volatility make that goal more challenging. CNBC reports that the average employee 401K account balance had plunged by 23% YOY as of October 31, 2022.
While not available to all employees, Health Savings Accounts can serve as an additional retirement tool that employees can use to help balance their overall retirement investments. HSAs pay for various health and wellness purchases, and part or all unused balances can be invested tax-free. That makes HSAs very beneficial as secondary retirement accounts that also save employees up to 30% annually in the form of tax savings on qualified healthcare expenses.
Challenge #3: Rising Interest Rates
Not only are the purchase prices of goods and services increasing, but the cost of credit is also increasing significantly. To slow down inflation, the Federal Reserve has raised key interest rates six times in 2022. These rate hikes increase the cost of borrowing for consumers and companies alike, which goes on to cause increases in the cost of everything they buy.
Employers can help by offering Lifestyle Spending Accounts with financial education included as a qualified expense. Budgeting classes and general financial education may be especially beneficial for your younger employees who have not lived through times of economic challenge.
Even in the best of times, emergencies pop up. Willis Towers Watson estimates that a whopping 41% of American workers live paycheck to paycheck. In January, CNBC reported that 56% of Americans could not cover a $1,000 emergency with money from their savings stash. Here, employers can help by facilitating Emergency Savings Accounts, where a small portion of the employee’s payroll is deposited into a separate, regular savings account each payday. Money that’s never “seen” is less likely to be missed, and before long, the participating employee will find themselves with a nice sum set aside for emergencies.
Economic Challenges and the Workplace
BrightPlan, an employer-sponsored employee financial planning service, found in its 2021 Wellness Barometer Survey that 65% of employees were stressed about finances, costing employers an estimated $4.7 billion per week in lost productivity. LinkedIn estimates the cost of employee disengagement at 34% from a combination of lost productivity, low morale, and related customer dissatisfaction. The direct cost of losing and replacing an employee is about 50% of their annual salary; some experts put it as high as 90% to 250%.
Helping your workforce address their financial challenges may reward you with happier, more engaged, productive, and long-term employees.
DataPath Summit is a cloud-based administration platform for FSAs, Limited Purpose FSAs, HSAs, HRAs, and Transit/Commuter accounts. Summit offers streamlined financial processes, including debit cards and electronic payments.