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Only one in four (24%) 401(k) participants are confident they can maintain their current standard of living in retirement, yet they are under-taking advantage of their employer’s tools and solutions aimed at improving their financial well-being. Cerulli Report – U.S. Retirement Investors 2024.
While 71% of 401(k) plan sponsors have adopted financial wellness programs that can provide valuable knowledge and recommendations, only 20% of participants utilize financial wellness tools and resources. While 41% of users found the tools “very useful,” 57% maintained a neutral rating on the tools’ usefulness.
Cerulli said the industry confuses financial literacy with financial wellness, and the incorrect terminology can discourage usage.
While financial literacy programs typically cover budgeting, savings and responsible credit card use, financial wellness helps employees feel more confident in retirement and can be delivered through individual counselling or online tools, as well as the importance of emergency savings.
According to Cerulli, the most effective financial wellness programs include guidance, financial planning and financial coaching. “Typically, a key feature of a personalized financial wellness program is its ability to effectively take into account important events in an investor’s life,” said Elizabeth Chiffer, an analyst at Cerulli.
Employers and plan sponsors may need to redesign their financial wellness programs to motivate participants to take action, she recommended. “If users feel compelled to act and feel they have made the decision themselves, they are more likely to continue to make positive financial decisions,” Chifer said.
According to Cerulli, the most effective financial wellness programs include guidance, financial planning and financial coaching. “Typically, a key feature of a personalized financial wellness program is that it effectively takes into account important events in an investor’s life,” Chiffer said.
Effective financial wellness programs can “provide a return on investment for recordkeepers by yielding richer participant data, building potential retail relationships, and attracting and retaining customers for plan sponsors,” Chifer said.
