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Employee 401(k) accounts may have been hit by recent market volatility, but that’s not the only reason balances may be down.
A new study from Morgan Stanley at Work reveals that 62% of employees have reduced their short- and long-term savings contributions amid high inflation and fears of a possible recession.
Nearly a third — 31% — of respondents have reduced contributions to their 401(k) plans. Meanwhile, 26% said they had reduced their debt repayments, 25% had reduced their long-term savings, 24% had reduced their emergency and short-term savings, 19% had reduced their contributions to savings accounts. health savings and 13% reduced their contributions to a college savings fund.
Additionally, 71% of employees said money-related stress had a negative impact on their work and personal life, an increase of 7% from 2021. Meanwhile, 84% of managers of human resources said they were concerned that personal financial problems could affect employees. productivity.
The online survey was conducted between July 13 and July 19 and included 1,000 employed adults and 600 human resources managers.
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Aim to contribute “the most you can do”
Shrinking savings are concerning because “more wealth is created in the workplace than anywhere else,” according to Brian McDonald, director of Morgan Stanley at Work.
This includes 401(k) and deferred compensation plans, employee stock ownership plans, emergency savings accounts, and student loan assistance.
“Employees always think of the 401(k) plan as the central thing they think of when thinking about benefits at work,” McDonald said. “That certainly hasn’t changed.”
The fact that employees have reduced their 401(k) contributions year over year is concerning, McDonald said, because they are not taking full advantage of their workplace retirement plans and compound interest that can help them build wealth over time.
Admittedly, setting aside money for long-term goals can be difficult as costs like rent and tuition rise, McDonald said.
“Start by maximizing the maximum you can do — not the maximum allowed, but the maximum you can do — in your 401(k) plan,” McDonald said.
Financial wellness benefits ‘getting bigger’
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Company leaders are doing more to provide holistic financial benefits to employees and are spending more money on those benefits, according to McDonald’s.
“The conversation is more about financial wellness, and that trend is definitely gaining momentum,” McDonald said.
The survey found that 60% of employees are paying more attention to reviewing their financial benefits than a year ago.
Additionally, 84% of HR managers say employees have requested financial benefits that their company does not offer, up from 78% in 2021.
Even then, the survey found that more and more leaders say their company offers quality financial benefits.
Still, 96% of HR managers said their company needed to do more to help employees better understand how to maximize the financial benefits available to them, up from 93% who said the same last year.
Meanwhile, 89% of employees agree, up from 87% in 2021.
When it comes to financial benefits, the top choice cited by employees was access to a financial advisor, at 52%; tracking goal-based retirement investment planning with 48%; and access to retirement tools and calculators, 46%.
However, HR managers cited different priorities, with goal-based retirement investment planning coming out on top, at 47%; followed by access to retirement planning tools and calculators, with 43%; retirement planning workshops, 40%; and access to a financial advisor, 40%.
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