Employees are spending too much on the wrong benefits. Here's how leaders can help

Every year, employees deduct funds from their paycheck toward health plans and retirement contributions, but without proper guidance from benefit leaders, those decisions could put their personal finances at risk. 

Thirty-seven percent of employees avoid thinking about their benefits and retirement plan entirely because they're too overwhelmed, according to a recent report from employee benefit platform SAVVI Financial. As a result, 19% of employees say that their benefit choices have resulted in financial stress, and 72% are more concerned about their financial choices this year than they were last year.

"Decision support has been around for decades but we've seen too little progress," says Brian Harrison, president of SAVVI Financial. "Everyone's trying to solve the problem, but it just gets more overwhelming as the impact of poor decisions keeps growing."

Read more: Retirees have no financial plan: How benefit managers can help employees now

According to the report's findings, 42% of participants say they spend too much on healthcare and are delaying major life milestones — like buying a home, starting a family and getting married — to keep from falling into debt. More than a third of employees say that healthcare-related costs leave them with little to no room for unexpected expenses, with 29% having dipped into savings to cover health costs in the last year. As for retirement, 39% of employees haven't calculated how much they need in order to retire comfortably and one-third feel as though they're not on track to retire at all.

Benefit education is still missing the mark

To solve the issue, many companies are still relying on solutions such as benefit guides or instructional videos, which may contain the right information but may not always communicate it successfully. Nearly one in five employees still don't fully understand their healthcare options, with several respondents admitting that they don't know their max-out limits, their coinsurance and their insurance premiums, deductibles and copayments. In addition, 13% of employees don't know how much they're contributing to their 401(k), and 15% don't know how much their employer matches. 

"Education matters — but it hasn't solved the problem yet," Harrison says. "The industry has come to the table with a plethora of solutions and the promise to solve it, but everyone just ends up more confused."  

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As a result, 77% of employees keep the same selection without re-evaluating how their circumstances have changed and 33% opt for the cheapest option, according to SAVVI's findings. Without intervention, this hasty decision-making could have long-term impacts on employees' futures.   

Better tools lead to better outcomes

Ninety-one percent of employees who have used AI or the internet for benefit guides agree that the information they received is trustworthy, according to the report. But while this information is potentially correct, there is still room for error. To reduce those risks, tech tools that help employees select benefits or provide information on their options should be embedded directly into an organization's guidance platform. Investing in a more comprehensive and centralized benefit selection tool could provide employees with the understanding they need to make informed decisions for their individual needs, as well as around-the-clock support.

However, not every tech tool is the right fit for every company, according to Harrison. Benefit leaders need to have a good understanding of the kind of assistance their workforce needs and where they are struggling the most in order to choose a tool accordingly.   

Read more: Which next-gen benefits are moving the needle at your organization?

"The technology we use should eliminate the amount of time needed to make a good decision," he says. "We need to move away from just checking the box. We need to acknowledge that people's time is precious and give them the closest path to getting the guidance they need." 

Helping employees make better benefit selection decisions has a good business imperative, too. Not only could it prevent organizations from spending more on things like healthcare premiums and benefits that aren't being utilized, it could significantly boost presenteeism, employee engagement and loyalty.   

"If things like turnover and employee surveys and workplace culture matter to you as a benefit leader, then helping people relieve their financial stress should matter to you," Harrison says. "This is one area where we can make a meaningful difference."