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The Tale of Two Economies: Promoting Workplace Benefits in a K-Shaped Economy  Thumbnail

The Tale of Two Economies: Promoting Workplace Benefits in a K-Shaped Economy

More than a year into the COVID-19 pandemic, there are signs of recovery in the U.S. Businesses and offices are reopening and life is starting to look more like it did pre-pandemic. 

All this is cause for optimism. Simultaneously, however, there’s abundant evidence that the pandemic has taken a financial toll on Americans, and it’s hit some harder than others. As the economy begins to bounce back, we are experiencing what is called a K-shaped recovery. 

When plotting the impact of an economic downturn, and its subsequent recovery, on a graph, a K shape is formed, showing some industries and demographics recovering quickly, while other stagnate and may sink further. More financially secure individuals are likely to be on the upward facing arm of the K, falling into the demographic that recovers quickly and continues to grow, while others, on the downward sloping leg of the K, struggle to make ends meet. 

Your diverse workforce likely includes both. Chances are, some were even forced to put their retirement in jeopardy, stopping or reducing savings to meet more immediate financial needs. 

The Pandemic Recovery Is Uneven

The reality is not everyone is experiencing recovery at the same pace. Individuals who were prepared for a financial emergency—those with savings or an emergency fund, for instance—fared better than those living paycheck to paycheck. 

"When the pandemic first happened, no one had any idea what to expect or the long-term effects on employees' financial situations. Now, we're starting to see the impact," said Michael Pallozzi, president and CFO of HFM Investment Advisors.

For those who were not as prepared, the situation looked noticeably different. Nearly a third of Americans (30%) report that their financial situation is worse now than it was before the pandemic.[1] Among them, half said that job loss was a major reason why. In addition, a majority are worse off when it comes to saving for retirement (73%) and emergencies (72%). In addition, 23% tapped into their retirement savings prematurely or stopped saving altogether during the COVID-19 pandemic, putting their future security in peril.[2]

Workers Felt the Impact Differently

The impact of the financial fallout was felt across income brackets. Both highly-compensated employees (HCEs)—those making $130,000 or more per year, or those with at least a 5% stake in a business—and non-highly compensated employees experienced retirement savings challenges due to layoffs, business disruptions and delayed or deferred plan contributions. 

As businesses cut costs to survive, highly-compensated employees might have missed out on employer contributions, such as top-heavy minimum contributions. For their part, non-highly compensated employees might have stopped retirement plan contributions due to job loss, wage cuts or the need to divert funds elsewhere for near-term needs. 

Take a Solutions-Oriented Approach No matter their current financial status, working Americans have a common goal: getting back or staying on track with their retirement savings.  

Pallozzi suggests plan sponsors consider a financial wellness program.

"Retirement is one piece of the puzzle when it comes to an employee's financial situation. A financial wellness program can promote and encourage savings, budgeting and more. Here at HFM, we help employers launch a program to fit their employees' needs and encourage participation,” he said. 

Additionally, the team at HFM promotes employee wellness through monthly education emails, a free podcast covering a wide variety of financial topics, quarterly webinars and 1-1 meetings with a financial advisor.

Employees who are more financially secure may value insights on: 

  • Increasing net worth
  • Purchasing or renovating a home
  • Improving their retirement savings
  • Diversifying their portfolios
  • Capitalizing on market opportunities
  • Tapping their home equity

In a world irrevocably altered by the COVID-19 pandemic, employers must embrace innovation in the benefits they provide to support employee financial well-being. By working with HFM, your employees will have access to personalized financial guidance, along with practical guidance to building savings and wealth. 

 

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This information was developed as a general guide to educate plan sponsors and is not intended as authoritative guidance or tax/legal advice. Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation.

©401(k) Marketing, LLC. All rights reserved. Proprietary and confidential. Do not copy or distribute outside original intent.

 

[1] Brown, Kathi S. “How Financial Experiences During the Pandemic Shape Future Outlook.” AARP Research. Updated May 2021. 

[2] Brown, Kathi S. “How Financial Experiences During the Pandemic Shape Future Outlook.” AARP Research. Updated May 2021.