Assets in the Workplace

1. Assets in the Workplace Ellen Seidman Director of Financial Services Policy Asset Building Program New America Foundation seidman@newamerica.net Invitational Business Roundtable 2008 Assets Learning Conference September 11, 2008

2. Why Assets? • Income helps you get by; assets help you get ahead • Benefits of assets • Income smoothing • Security, future orientation • Leverage for safe credit-based asset-building • Access to lower-priced, higher-quality investment opportunities and credit • Enables intergenerational wealth transfer New America Foundation ♦ Asset Building Program

3. New America Work on Workplace Asset Building • AutoSave • Automatic enrollment into and payroll deduction for savings account that is neither use-restricted nor tax-advantaged, i.e., can be used for emergency and near-term needs • Working on pilot design with MDRC, funded by Rockefeller Foundation • Workplace Financial Education • Field research plus questionnaire by Lew Mandell of University of Washington, funded by Hitachi Foundation • Webinar on September 26; contact Karen Murrell at kmurrell@higherheightsconsulting.com New America Foundation ♦ Asset Building Program

4. Asset Challenges for Low- and Moderate-Income Workers • Concern about living paycheck-to-paycheck pushes toward immediate income maximization, often at cost of longer-term stability • Part-time and seasonal work, multiple jobs result in worst of two worlds: ineligibility for benefits and multiple FICA withholding • Strong temptation to stay “off the books,” which means no benefits, no Social Security • Health insurance co-pays and premiums may lead to lack of health insurance; those without health insurance at much higher bankruptcy risk • For very low income workers, asset limits of income-support programs may limit or at least discourage saving New America Foundation ♦ Asset Building Program

5. Standard Workplace Assets Programs Don’t Work for Lower Wage Workers • Involve locking up money for specific purposes in the future; conflicts with concern about more immediate needs • Tax benefits are minimal or useless; “use it or lose” it feature of flex accounts conflicts with need for every penny • Many of these employees lack financial information and understanding that would enable them to make effective use of asset-building workplace benefits, including direct deposit and payroll deduction into a savings account or Savings Bonds New America Foundation ♦ Asset Building Program

6. Why the Workplace Should be A Good Place to Build Assets • It’s where income is earned, and if money can be moved to savings or investment before it gets to worker, it has greater chance of being used to build assets • Systems are in place for • Direct deposit • Although about 80% of lower wage workers who receive regular paychecks have access to direct deposit, about 1/3 of those don’t use it • May not be able to get bank account; may not want one (concern about creditors is one issue) • Payroll deduction • Benefits • Enhancements through matching feasible • Economies of scale • Good HR department can maximize utility • Asset building and asset protecting benefits can grow with employee, and can include stock ownership and life and disability insurance • Many workplaces have relationships, often on-site, with a credit union or bank New America Foundation ♦ Asset Building Program

7. Financial Education In the Workplace • Opportunity is great • Workers spend a good deal of time there • Relative homogeneity of workforce should make focus more feasible • HR departments and other resources (e.g. EAP programs) available • On-the-clock and on-site provision can encourage attendance • But there are serious challenges • Not viewed as a valued benefit by employers or employees; even in good programs, take-up rates are very low • Privacy issues, as to both co-workers and employer • Concerns about potential conflicts of interest when “free” education is provided by those who also have products to sell, including asset management (and even when these providers are good, they have little interest in lower-wage workers) New America Foundation ♦ Asset Building Program

8. Challenges to Overcome with Employers • Many large employers of low-wage workers regard high turnover as a cost of doing business, and are not interested in providing benefits those value is felt only over the long term or through retention • Concern that encouraging low-wage workers to save outside of a retirement plan will place retirement plan at risk of violating ERISA top-heavy or non-discrimination rules • Have employers who moved to “opt-out” retirement plans (and thus are exempt from to-heavy rules) “checked the savings box,” leading to lack of interest in other types of employee asset-building strategies? • GAAP accounting can make broad-based employee stock option plans expensive for larger companies even though there is no cash payout New America Foundation ♦ Asset Building Program

9. Assets in the Workplace Ellen Seidman Director of Financial Services Policy Asset Building Program New America Foundation seidman@newamerica.net Invitational Business Roundtable 2008 Assets Learning Conference September 11, 2008