Persistent high inflation, drastic market swings and recession fears have taken a big hit on employees’ financial confidence, leading them to value financial benefits more than ever, new research suggests.
But there’s a problem: While employees are valuing these offerings, some employers are dropping them as they prepare for an economic downturn.
That’s according to a new report from Morgan Stanley at Work, which found that roughly 69 percent of employees said they are paying more attention to reviewing their financial benefits in 2023, up 9 percentage points from last year. Meanwhile, the vast majority of employees (89 percent) said they would be more invested in staying at their company if it provided financial benefits that met their needs, according to the financial service firm’s survey of 1,000 U.S.-employed adults and 600 HR leaders.
The kicker: 1 in 4 HR leaders said they are cutting back on employee financial benefits to prepare for a recession. The exact benefits being cut weren’t specified in the report, but financial benefits ran the gamut from financial counseling and budgeting help to student loan repayment programs and retirement planning.
“Belt tightening is a natural part of any business cycle, but the challenge is it has been so long since we’ve experienced a sustained downturn, like the bear market we are in today, that many employees— and employers—simply haven’t been through it before,” said Brian McDonald, head of Morgan Stanley at Work. “This makes a tough situation all the more challenging.”
The data is the latest to indicate that employers are indeed dropping, or considering dropping, benefits as a result of economic pressures. Another report from Care.com, released in March, found that nearly half of companies are eyeing cutting benefits to prepare for a possible recession. Those benefits include adoption and fertility assistance, commuter benefits, health and fitness discounts, and home office stipends, according to the caregiving provider, which surveyed 500 U.S.-based HR leaders and professionals. Higher-than-average planned cuts are happening in the food and hospitality, retail, and manufacturing and construction sectors, the report found.
Some high-profile firms have already made benefits cuts: Twitter, for instance, is slashing its paid parental leave policy by 90 percent in some cases, while Google is cutting back on employee perks such as fitness classes and even some office equipment to trim costs.
The Morgan Stanley at Work report dives specifically into financial benefits, which are in particularly high demand given the high cost of living and other economic pressures that are driving steep declines in employees’ financial well-being. MetLife’s annual benefits survey, released in March, found that just 55 percent of employees said they are financially well.
Financial benefits have been a way for employers to help combat these challenges by offering employees financial counseling, debt repayment, financial incentives or other help. In general, workplace offerings have increased over the past few years, Morgan Stanley found: The vast majority of HR leaders (89 percent) say their company now offers financial wellness programs, a 10 percentage-point gain from 2021.
Employees, though, are increasingly expecting more as employers look to cut back, illustrating a problematic paradox. A significant number of employees (88 percent) are requesting benefits that their company does not offer, up from 78 percent in 2021.
What could transpire if employers cut back on financial benefits as employees overwhelmingly request them?
For one thing, McDonald said, the study found that 66 percent of employees agree that financial stress is negatively affecting their work lives, so workforce productivity is certainly a concern. “HR leaders also found that benefits that reduce financial stress are the most influential in employee job satisfaction, which speaks for itself. Lastly, retention and attrition will remain a risk for employers that are not offering crucial financial benefits that employees are now seeing not only as a standard, but also as a necessity,” he added.
The good news is that, although plan administrators are facing difficult decisions amid reduced budgets, some employers are getting creative and “making smart moves that reduce costs, like leveraging digital solutions in place of traditionally analog activities such as awareness and education campaigns around benefits.”
Especially if cuts are inevitable, employers can tout the benefits they do offer—something that is not done enough, McDonald said.
“One consistent trend we’ve seen is the need for employee education,” he said, adding that in many cases, despite employers offering financial benefits, the Morgan Stanley at Work study found that there is a gap in resources for employees to be able to maximize these benefits.
“Companies can offer the best benefits programs in the world, but unless employees are aware and engaged, those programs won’t serve their purpose,” he explained. “This means everything from a seamless end-to-end digital experience to topical trainings focused on financial issues employees care about, like debt, student loans, balancing short- and long-term financial needs, and managing any company equity compensation.”