In Morgan Stanley’s second annual State of the Workplace Financial Benefits Study, 71% of employees said financial stress negatively affected their personal lives and work. More than four out of five (84%) believe employers should provide more tools to help them navigate economic challenges.
Traditional Financial Benefits
Employers have long offered financial tools like profit-sharing plans and 401Ks. Both offer some tax savings and enable a path toward a more comfortable retirement. However, they come with annual contribution limits, early withdrawal penalties, and substantial regulation. And many employees admit that, despite regularly contributing to these plans, they don’t understand them well and don’t know how to maximize their financial benefit.
Contemporary Benefit Programs
Coming out of the pandemic, employees seek more support from their employers for mental, emotional, financial, and physical well-being. In response, employers are offering a variety of creative benefits. Some of the non-traditional financial benefits that are growing in popularity include:
Student Loan Assistance Programs
The Biden Administration is conducting a federal student loan forgiveness program for those who meet certain income guidelines. However, most student loan debtors will still owe a substantial amount even if they qualify for the assistance. Thanks to the CARES Act of 2020, employers can contribute up to $5,250 annually toward an employee’s student loan debt. These payments are a qualified business expense for the employer and tax-free to the employee through 2025.
Emergency Savings Accounts
Recent studies by Fidelity, SoFi, and Willis Towers Watson (WTW) show that emergency savings accounts are among the most sought-after financial benefit programs. By facilitating employee savings through payroll deduction into a savings account, employees make it easier for employees to build rainy-day nest eggs. Since these are post-tax savings accounts, there are no regulatory limits on amounts set aside or restrictions on withdrawal.
Tax-Advantaged CDH Accounts
Tax-advantaged consumer-directed healthcare (CDH) accounts can provide employees with significant tax savings each year – an average of 30% on funds set aside to cover eligible products and services.
In addition to short-term tax savings, Health Savings Accounts (HSAs) offer an alternative investment path for retirement. Unused funds roll over from year to year, gaining tax-free interest and investment returns. According to the 2021 Year-End Devenir HSA Research Report, HSA account owners are achieving strong investment asset growth on unspent balances, up 45% year-over-year versus 2020. The average invested balance is just over $19K. However, only about 7% of all accounts have an invested balance, so it’s still a largely untapped resource.
Lifestyle Spending Accounts (LSAs)
LSAs are the latest and most unique financial benefit. Funded entirely by the employer, these post-tax accounts can be used to offer immediate support to employees for physical, mental, emotional, and financial well-being. Eligible expenses are practically unlimited and completely up to the employer. Employees are taxed on any amounts actually received.
Employers can use LSAs to provide additional financial tools by reimbursing employee costs to access financial products and services such as:
- Estate planning
- Financial advisors
- Financial seminars
- Budgeting classes and apps
Traditional financial benefits are no longer enough to attract and retain the best employees. Employers have to do more. Fortunately, there are a number of options available. Talk with your benefits TPA, broker, or qualified benefits counsel to learn more.
DataPath, Inc. is a leading provider of technology solutions for cloud-based benefits administration.