1

Workplace Employee Wellness

• Basic Financial Literacy– Budgeting, Banking, Reconciliation, Checking, Saving, Financial Goals,

Understanding credit cards, Importance of Credit Scores,

• Home Ownership– Down payment, Prepay penalties, Loan programs, Cash Flow, Equity

management – Good debt vs. Bad Debt

• Financial, College & Retirement Planning– 401(K), 403(b), Pension, 529 plans, stocks, bonds, Utilizing a financial planner

• Health & Nutrition– Health insurance, exercise, diet, nutrition, (these topics addressed in later

session)

2

Benefits of Workplace Financial Education and Home Equity Management Planning

1. Attract, retain, reward and motivate the right employees to achieve a committed and productive

workforce!

2. Improve productivity and reduce costs by addressing the work-life issues your employees face everyday.

3. Educate employees about cash flow, debt reduction, savings, retirement planning, their mortgage structure

and how it affects wealth enhancement.

3

State of the Employee Financial Wellness

• In December 2005, consumer debt in the U.S. reached $2.2 trillion. Credit cards account for almost 40% of that debt.1

• The average household has a combined balance of over $8,400 on credit cards and the average interest rate is just under 13%.2

• The U.S. Personal Savings Rate dipped below 0% during 2005 and is now at -0.7%, which means personal outlays are exceeding personal disposable income.3

• 46.6 million American workers have no health insurance

• 1. Federal Reserve Board, December 2005, Consumer Credit Statistical Release www.federalreserve.gov

• 2. Money Magazine, March 2006.• 3. Bureau of Economic Analysis, January 2006 www.bea.gov

Approximately 30% of workers report high work stress and among the five major risk stressors (relationships, work, health, crime/violence, and personal finance), workers rate personal finance the number one source of stress!

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REAL WORLD EXAMPLEJim & Sue Smith, 3 children

• $135,000 house,15 yr., monthly pmt = $2,300• 1st & 2nd mortgage, $105,000 annual income• Monthly $825 – 2 car pmts, $1,300 credit cards• Credit scores are low, but not damaged• 5 hrs phone calls & meetings• Countless hours / days spent under stress

• Solution: 125% Loan to value refinance• Payoff all debts except mortgage & car loans• 8 months of saving, $2,000 cash flow monthly

5

Relationship between personal financial wellness and worker productivity!

• Improving employee financial wellness can result in a 40% boost in your company's financial performance. Employees with money and credit card issues are more likely to be unhappy with their salary levels and/or change employers. Source: National Report on Work & Family, 2001

– Financial Stress – negative impact to the employer• Absenteeism• Workplace morale• Diminished productivity• Employee Theft• Primary cause of divorce and family breakdown

– Work time used for personal financial matters – Average employee with financial problems spends 27 hours a month worrying about financial issues.

• Talk with coworkers about money related matters• Talked with a lender about refinancing home or car• Make calls regarding an overdue credit payment• Make calls to friends or relatives about financial matters• Make calls to a lawyer• Talked with a financial planner• Make calls to a credit or budget counselor

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Reduce HR Administrative Costs

– Financial education helps defray the costs of wage garnishment and payroll advances for employees in financial trouble.

– Reduces the burden on internal HR staff from answering questions on financial benefits, communication and marketing around financial benefits.

– Especially effective for companies with multiple sites and remote workforces

• Increase participation in employee financial benefits programs Only half of all workers who retire have any kind of private pension plan. And over half of 401(K) participants age 51-60 have $10,000 or less in their retirement account!

– Knowledge is power! Employees who understand their benefits are more likely to participate in them.

– Financial education can help your company pass discrimination testing by increasing participation.

7

U.S. Household Wealth

Home Equity$10.92 Trillion

27%

Life Insurance Reserves

$1.07 Trillion3%

Pension Fund Reserves

$10.48 Trillion26%

Treasury Securities/Savings

Bonds$2.17 Trillion

5%

Mutual Funds$4.10 Trillion

10%

Cash/Savings Deposits

$5.95 Trillion14%Stocks and

Corporate Equities

$6.12 Trillion15%

Home Equity accounts for almost one-third of all U.S. household financial wealth, yet it is the only “unmanaged” financial asset!

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Incorporating Home Equity Management Planning into Workplace Financial Education

• How employees handle issues of home ownership may well determine whether they achieve financial wellness.

– Rent vs. Own – Owning a home is the American dream– Credit Scores – more powerful than money

• Understanding credit scores• Credit repair• Identity theft

• Mortgage Structure and Wealth Enhancement – Down payment– Prepay penalties– Loan programs– Equity management - Cash Flow– Debt Reduction – Good Debt vs. Bad Debt

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Best Practices

• #1: Unbiased programs, designed to educate, not sell. – Clearly separate employee financial education plan from normal Retirement Plan Mtgs

• #2: Incorporate multiple learning channels to accommodate different learning style’s —Enable employees to access the information in the way that is most helpful and convenient for them.

– Offering multiple learning channels will result in a high percentage of employees utilizing the service.

• #3: Personalize the financial counseling and coaching so that employees can get specific guidance on their own financial situations.

• #4: Education should be on-going not just a one time event – and by offering unlimited access, employees can use the service as often as their personal needs dictate.

– Studies show that on average information has to be repeated seven times before people act upon it, reinforcement is a must.

• #5: Market the programs as a new employee benefit, “Personalized Financial Coaching Benefit”.

– Employees perceive greater value in an employee benefit than they do in an individual service. Employees will be more engaged.

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TimeDo you have time to manage

your portfolio?

ExpertiseAre you an expert in

investing and market trends?

DesireDo you enjoy making

investment decisions?

Considering Professional Advice

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If you save $250 each month, how much could you have in your account after 30 years* ($90,000 total investment)?

6% - $251,128.76

8% - $372,589.86

10%- $565,121.98

12% -$873,741.03*http://www.fandktitle.com/calcs/allcalcs/invest_return_calculator.htm. Sample shown for illustrative purposes only.

Assumes that Interest is compounded monthly. Does not include the effect of any fees, reinvestment of dividends or additional contributions or withdrawals. Investing involves market risk, including possible loss of principal, and there is no guarantee that investment objectives will be achieved.

Investment Performance

12

S&P 500 Index

11.9%

Average Equity Mutual Fund

Investor

3.9%

Source: Quantitative Analysis of Investor Behavior 2006, Dalbar Inc. Equity performance is represented by the Standard & Poor’s 500 Composite Index, an unmanaged index of 500 common stocks generally representative of the U.S. stock market. The average investor refers to the universe of all mutual fund investors whose actions and financial results are restated to represent a single investor. This approach allows the entire universe of mutual fund investors to be used as the statistical sample, ensuring ultimate reliability. QAIB calculates investor return as the change in assets, after excluding sales, redemptions and exchanges. This method of calculation captures realized and unrealized capital gains, dividends, interest, trading costs, sales charges, fees, expenses and any other costs. You cannot invest directly in an index. Past Performance is not necessarily indicative of future results.

Average Annual Returns1986-2005

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Influences on Participation Rates

• Positive Factors

– Age

– Income

– Tenure

– Employer match

– Loans

– Company stock

• Peer Influences

Source: What’s New From the Ivory Tower, Dr. Julie Agnew, William and Mary College

Plan Design and 401(k) Savings Outcomes, National Tax Journal on Pensions, James C. Choi, Brigitte C. Madrin, David Laibson, June 2004

• Negative Factors

– Age

– Income

– Tenure

– Company offers a DB plan

– Procrastination

– Number of investment options

– Lack of knowledge

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Participation

Source: Annual Survey of Profit Sharing and 401(k) Plans, Profit Sharing Council of America

78%77%76%80%

2005200420032002

Is it acceptable that 1 out of 5 eligible employees does not participate?

RATES:

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Savings Levels • Behavioral reasons for undersaving

– Determining appropriate savings rate is difficult

– Lack of self control

– Procrastination and inertia

– Loss aversion

• Individuals want to save more but procrastinate

– 28% planned on increasing their savings rate after attending a financial seminar

– Only 8% actually did increase their savings

• Majority have not tried to estimate how much money they will need for retirement

• Many underestimate how much money they will need

Source: Defined Contribution Pensions: Plan Rules, Participant Choices, and the Path of Least Resistance, Choi, Laibson, Madrain, Metrick, Nov. 2001, Updated July 2004

Employee Benefit Research Institute, 2005 Retirement Confidence Survey

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Save More Tomorrow Results – Average Savings Rate

13.6%

11.6%

9.4%

6.5%

3.5%

162

Chose Auto Increase

8.8%

8.2%

8.9%

9.1%

4.4%

79

Accepted Consultants

Advice

6.2%

6.6%

6.8%

6.5%

6.6%

29

No Consultation

4th pay raise

3rd pay raise

2nd pay raise

1st pay raise

Pre-advice

Initial participants

5.9%

6.1%

6.2%

6.3%

6.1%

45

Declined Auto Increase

Source: Save More Tomorrow: Using Behavioral Economics to Increase Employee Saving, Richard H. Thaler and Schlomo Benartzi, 2004

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Increasing Number of Investments

13%

6%

11%

40%

17%

13%

8%

5%

9%

40%

23%

15%

7%

6%

9%

38%

27%

18%

7%

3%

7%

38%

23%

23%

1-8

9

10

11-15

16-20

More than 21

2005

2004

2003

2002

Source: PSCA’s Annual Survey of Profit Sharing and 401(k) Plans

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28%

16%14% 13%

29%

24%

16%14% 13%

32%

0%

5%

10%

15%

20%

25%

30%

35%

1 2 3 4 5+

Source: 2006 Fidelity Investments Building Futures

Do Participants Take Advantage?

% o

f T

otal

Par

ticip

ants

Number of Options Utilized by Participants

11 – 15 Options 16 – 30 Options

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Participant Rebalancing is Market Driven

• 88% of all participants made no trades (April 1994 – August 1998). In 2003, 87% made no trades.

• On average, one trade is made every 3.85 years

• Most transfer activity

– driven by a “polarity” factor….rebalancing between equities and fixed income investments

– motivated by the contemporary performance of the market, rather than a long-term strategy

Source: DC Plan Investing December 2004,

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Are Asset Allocation/Lifestyle Funds the Solution?

55%2003

63%35%30%19%% of Plans 2005200119991997Year

Source: Hewitt Trends and Experience in 401(k) Plans, plansponsor.com, Ioma’s Annual Defined Contribution Survey 2005

10%

2003

10%10%8%10%% of Total

Balance

2005200119991997Year

Other survey:• 58% of plans offered this option in 2004• Only 5% of assets

Plans Offering Asset Allocation/Lifestyle funds

Percent of Plan Assets

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Are Lifestyle Funds Utilized Properly?

Source: Hewitt Associates, 2003 Benchmarks

12.8%

17.3%

11.6%12.6%

17.4%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

20-29

Lifestyle Fund Utilization – By Age

40-49 50-59 60+30-393

3.5

4

5.5

4.5

5

6

Per

cen

t o

f P

arti

cip

ants

Avg

. N

um

ber

of

Fu

nd

s

4.5

5.65.5

5.2

4.6

22

Source: PSCA’s 49th Annual Survey of Profit Sharing PlansSavings Rate Doubles for Those Who Use Advice and Managed Accounts, Managing 401(k) Plans, May 2005NOTE: Results are based on an internal analysis by Charles Schwab. Schwab does not charge participants or the plan sponsor a fee for the advice service.

Managed Accounts

1-49 50-199 200-999 1,000-4,999 5,000+ All Plans

29.0% 30.7% 26.4% 17.6% 15.2% 24.4%

Plan Size by Number of Participants

Percentage of Plans Offering a Professionally Managed Alternative

• More likely to sign up for advice (54%) when the

service is presented in face-to-face educational

sessions

• 401(k) savings rate rose from 4.57% to 9.57%

(2004)

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Summary

• Participation

– 1 in 4 do not participate for various reasons

– Automatic enrollment increases participation and gets participants in the plan sooner

• Savings

– Low savings rates are an epidemic

– Automatic escalation is effective in increasing savings rates

• Investment Decisions

– Most are overwhelmed and need help