Invest in Your People

This transcript has been generated by an A.I. tool. Please excuse any typos.

Clare Golla: Hi everyone. Welcome to Inspired Investing. I'm your host, Clare Golla, Head of Foundation and Institutional Advisory at Bernstein. This podcast is where we strive to connect and share insights with listeners like you who are engaged in the nonprofit, philanthropy, and broader social sectors. Today I am thrilled to be joined by two of my Bernstein colleagues who are well versed in the art of human capital.

Halley Love leads our National Retirement Plan practice while Chris Gouryh specializes in designing and implementing plans, including financial wellness programs for nonprofit organizations. Thank you both so much for being here. Thanks for having us. Yes. Thank you. So, Halley, why don't we start with you?

We know that nonprofit organizations are suffering from what the Chronicle of Philanthropy has stated as workforce shortages that threaten the ability of nonprofits to help their communities. So, this is a big deal. We're all aware that impact organizations generally lag the private sector in terms of compensation.

But here's the thing, exit interviews show that employees often cite items like lack of leadership development, growth opportunities, things like that, instead of compensation or at least ahead of compensation. So tell us a little bit about the role you see for employee benefits like financial wellness programs, for example, in this scenario.

Halley Love: So let me first start by defining what a financial wellness. Program is in layman's terms. And we've been seeing this on the corporate side for a long time. In fact, over the past eight years on the private side, employers have doubled the amount of financial wellness programs that they've offered, but in the nonprofit sector, we have seen an extreme turnover in leadership levels.

They're strapped for time and resources, and they haven't thought about or had the capability to offer these financial wellness programs, but what it is, if we think about financial wellness as an employee's overall financial health. Including a lack of money stressors that a financial program is aimed at helping employees better manage money and reduce financial burdens, therefore, leading to overall financial wellbeing, it may include workshops, personal financial coaching on specific topics, online education, budgeting tools, credit resources, household budgeting, investing, saving taxes, insurance and So, Often what these employers are doing is that they're tailoring and it can be tailored for employees who are focused on saving for retirement, maybe maximizing benefits in the plan, how much to expect from social security, understanding what healthcare costs look like in retirement.

And then on the millennial Gen Z side of things, it's credit card debt, saving for a first home, starting an emergency fund, paying off college debt. So listen, 2000 workers across a number of industries. And we know that when Interviewed two thirds of workers said that they do not have a financial wellness program offered by their organization, or they're not aware of it, which means if it exists, they're not aware of it.

And the, uh, the employer is not promoting it effectively. So, the data is there, it's overwhelmingly clear that employees want access to these tools, resources and education.

Clare Golla: All right, so that's this is a lot. Let's unpack this a little bit. So you've just discussed across a range of industries. What do you typically see in terms of the benefits of all of this, right?

The benefits of this benefits the results in organizations that have implemented these kinds of programs.

Halley Love: Well, so aside from the benevolent nature, right, of making sure your staff knows what they're doing and they're well informed, right. We actually have research that's shown that when there's an increase in financial literacy, it's often directly correlated with an improvement of productivity and a reduction in certain employer costs associated with the delay in retirement.

So. Listen, we also have done research that shows that employees spend on average 13 hours a month, and that's 156 hours a year worrying about finances, and everything goes along with that health impact medical implications and costs. And so when you keep additionally. Unmotivated workers in your workforce.

It prevents you from rejuvenating your company with new talent. So if they're stressed, they're twice as likely to be looking for another job and they can't retire. They're six times more likely to have stress impact productivity and attendance at work. So, you know, we've actually quantified this. Now, again, this is national, but you know, our study shows that the incremental costs delaying retirement by one year is 50, 000 a year per employee per year. So the opportunity cost is real of not implementing one of these financial wellness programs.

Clare Golla: So there's a lot of research that supports this, uh, broadly speaking. This is a great segue, Chris.

I want to turn it to you and bring you into the conversation because you work with a number of our foundation and nonprofit clients specifically where we're seeing really this HR crisis going on. You know, across the social sector, there's this emphasis on organizational sustainability, right?

Fiduciaries ensuring the financial health of the organization so the mission can continue. And that all sounds great. But if you ask any social sector leader, They'll be the first to say that their most important asset is their people. So there's like this disconnect because it sounds like the philosophy isn't necessarily being applied in practice.

So what are you seeing in the field when it comes to social sector organizations specifically?

Chris Gouryh: Yeah, Clare, I think you, you highlighted something that's incredibly important right at the beginning of this discussion. And it's that turnover is incredibly high. In the social sector. And what do we know about non profit organizations?

We know that employees that are joining nonprofits are not typically motivated centrally by compensation, right? If they were, they would have probably joined a for profit peer. What is lacking in these organizations that they can improve or what are some steps, you know, we've seen really successful organizations implement internally, we see a lack of learning and development programs, I like to use the phrase, if you can't pay them, grow them.

Understand your demographic. If you have a tremendous number of employees that are Gen Z or Millennials, they're likely looking for leadership opportunities, and that doesn't necessarily have to come with a financial consequence to the organization in terms of, you know, significant compensation, but it can mean opportunities for growth internally, looking at the next step in their career.

The second piece here that we've seen a gap in is prioritizing total rewards. You know, we use this phrase total rewards as thinking outside of compensation. Are there adjustments right to your benefits package that would make your organization more attractive to somebody who is going through that interview process?

Right? Our goal here is To recruit the right talent and keep them in house. And so a proper benefits package that covers insurance, that covers a number of different areas, things like wellness, as Halley just mentioned, both on the financial side and the personal side can really help. We've seen organizations really spend time reallocating expenses that maybe were in underutilized programs to implement things like.

A competitive 403b or 401k match for the first time. So these are some of the strategies we've seen.

Clare Golla: So that's great. Thank you. I want to ask you, Chris, like just to follow up on that and dig in a little bit. Culture fit is actually one of the top reasons that many employees cite, uh, in their exit interviews.

And you just mentioned diversity, equity, and inclusion as a key. How might an organization customize a financial wellness plan based on the employees that they're working with? And what I'm thinking about is like, what, what might be a benefit for one group of employees may not be a benefit for another.

Chris Gouryh: So help shed a little light on that. It is incredibly important that financial wellness, when we talk about it, not just be a generalized program. That includes basic education, but it needs to be tailored to each and every group in your organization. So what might that look like for a group like Gen Z?

That could be student debt repayment, right? These are very common challenges that they face on a day to day basis and understanding. Can I even put aside money to budget for retirement plans or, or not? Right. And so if we can address that issue, first and foremost, we can help them get to a better place from a financial standpoint for those that are later in life, right.

Or maybe are planning a family that could be things like starting a five to nine plan. This can be a fantastic benefit for organizations that can offer that type of access to financial advice to employees that otherwise wouldn't be able to access that externally.

Clare Golla: Well, I think that that's an important thing to know, because what we've seen anecdotally, you know, if we look at nonprofit plans versus similar sized private sector plans, in terms of employees or eligible employees, what we see is lower overall participation rates and lower percentage rates of investment in growth assets, right?

And so you've got this double whammy people, a aren't investing enough and be not, they're not investing in the right assets that can really help them grow. To a point where they can retire, where we, you know, where retirement is a reality. And so it's hard when you have lower overall comp, right? It's hard to defer any amount that one on one, I think that, that those office hours or however you want to describe it, that education and that advice is so critically important, but also delivering that information.

In a way that meets the employee where they're at. So I think about a client of ours where a number of their employees are Spanish speaking first. And when we were able to implement some aspect of financial wellness programming in Spanish. That was enormous for the employees there, um, not that people weren't bilingual, but if you feel more comfortable in that, you know, in one language versus another, that was a big benefit.

So this all sounds great, but presumably it all comes with near term costs to organizations that are also very cash strapped. And so how do you respond to this?

Chris Gouryh: Look, I think it's important to start by saying, look, all retirement plans are not created equal, right? And this is particularly true when we analyze fees, the underlying costs of retirement plans for nonprofit organizations versus those of their corporate brethren providing a competitive plan to employees that HR can share as a suite of benefits, right?

The 403 B and 401k plans of nonprofits have historically had. Higher investment expenses, higher record keeping fees, higher advisory fees. And we can even quantify this. We've looked at one of the most comprehensive retirement plan industry studies run by the Investment Company Institute and BrightScope.

What we found is nonprofits are significantly more likely to have higher investment expenses for participants. That's greater than 75 basis points. For those of you that aren't familiar with these numbers. That is very high. There were more likely to include retail share class mutual funds instead of institutional share class mutual funds.

I can tell you every single listener here. If you're participating in a 401k or 403b plan, you should certainly have access to institutional share class funds. And they've also been more likely to have not conducted. An independent evaluation of providers and fees over the last three years. So these are all factors that lend themselves to higher near term costs for employers.

Clare Golla: I'm just curious why, like, why do you think this is? Why do you think there's such a gap between, that's significant, between nonprofit and private sector?

Chris Gouryh: Well, I can tell you this. Fees have compressed in the 401k and 403b plan space tremendously over the last five years. Yeah. And what we do find is that organizations that reprice their plan as they grow are the beneficiaries of better pricing and more competitive fees. Unfortunately, what we see in, in the social sector is, and this is probably due to that turnover that we talked about and a lack of continuity and leadership is that most organizations are not going to market and pricing out their plan on a regular basis.

Clare Golla: So it's interesting when you describe this, because when, when you say this, I'm thinking about the differentiation of roles at nonprofits. And frankly, sometimes it is all hands on deck. Jack of all trades, Jill of all trades, however you want to describe it. What I'm talking about is 1 person who has a whole bunch of different responsibilities beyond 1 specific role, or what was in their job description. So you might have a, an executive director, a chief operating officer, a chief financial officer, whoever that is, who's actually also running H. R. and benefits. And so. It may not be at the top of the priority list on an ongoing basis, right?

To actually reprice this or take a look at what's out there in the market. The other thing is I'm thinking about boards of directors, right? As fiduciaries of the organization, there isn't an employee benefits committee, so to speak, typically there's governance. And then that usually falls under that, or maybe it's programs, right?

You know, I don't know what it might be, but it's not necessarily defined in that way where people are on an annual basis going to market and really looking at what value they're getting for what they're paying. So that's an interesting point that you made. So all this being said, what kind of savings do you think an organization could actually expect from?

Chris Gouryh: Yeah, well, many of our clients, and we can use some specific examples here in terms of the plan asset size, right plans that have grown, let's say, from 1 million as maybe a startup organization to about 5 million or 5 million plus now as a more mature organization, you know, we've seen folks go through repricings and it could be in the order of 30 or 40 percent of reduction of costs and that reduction of cost that is directly in the pockets of those employees that are participating and your plan has become that much more competitive. You're able to implement these things.

Clare Golla: And it can go towards other benefits too.

So if you're saving on one hand, right, you could be deploying other types of wellness plan. You know, you could be deploying other types of leadership opportunities, education, those sorts of things for employees. So you can shift how those dollars are used in order to invest in your people in different ways.

And you and I talked with an HR consultant a while back, and she was talking about how one organization that she worked at had like a really outdated gym membership. No one was using So they cut the gym membership, right? And they applied those dollars from that program into and i'm not saying that You know organization shouldn't have a gym membership but it's a good example of Looking at all of the benefits that you're offering to employees and who's using what if people aren't using something Maybe that's an indication that There's not a cultural fit or there's not, you know, that's, it's not the right fit for that group of employees.

So interesting stuff. Okay. While this is just one element, the financial wellness is just one element of this very complex, I would say human capital, uh, challenge across the social sector, what I'm hearing today from both of you is that for leaders who are recruiting and developing talent, that incremental improvements like implementing a row.

Bust financial wellness program in conjunction with your retirement plan. It could go a really long way. So Halley and Chris, what would your final message be to listeners? And I'll start with you, Halley. 

Halley Love: I mean, I know we had a brief period today, but if you take anything away as a leader and a nonprofit space, it's that you should absolutely be considering adding a financial wellness program for the organization.

As you've said, this doesn't have to be a standalone offering. It can be embedded right alongside or within the retirement plan. The other thing I will say that, that you were mentioning before. Is that I would consider bringing HR or human capital in with the investment discussions. Our experience with nonprofit is that often those are very distinct roles.

And so the board, as you're saying, in charge of investments may not be understanding the real benefit by bringing that in with a financial decision on the plan. But listen, we've monitored these organizations that have implemented these over the past 3 years. We have data that backs that there's. The improvement in the number of employees engage with the organization, which might speak to the turnover issue.

They have a better perception of the organization. They're more productive and focused and less stress. So listen, these programs do move the needle. They're not hard to implement the greatest and most efficient place that we're seeing them embedded is alongside the retirement. Because again, if people are more comfortable and have that financial knowledge and literacy.

Then they can actually take advantage of that deferral, and they do lower the stress levels and have a better perception of the organization, which is, I think, what all of these organizations are looking for.

Clare Golla: Thanks, Allie. Chris.

Chris Gouryh: Yeah, if I could leave you with 1 actionable takeaway, that would be if you have not benchmarked your retirement plan in the last 3 years.

That is absolutely an exercise that you should go through. You know, we've discussed here that those that haven't conducted an evaluation recently are missing out on a compression of fees. So that could be something that you could discover in this process. And I would really say if it's every three years or if your plan has grown significantly.

If you've hired a significant number of staff, that can drastically change the dynamics of pricing for your retirement plan. So certainly take that as an initiative to go out and benchmark your plan more broadly with each and every vendor that you engage in your retirement

Clare Golla: plan. That's great. And that's such good advice on all sorts of right across the board policies and programs as your organization is changing and developing and growing.

For instance, it's so important to take a look at what's today's environment. What do we see prospectively? And do a review and we do that with investments all the time, right? That's, it's an important thing. So, well, thank you both so much. That is all we have time for today, but I really appreciate your expertise.

I think we're going to be getting quite a few questions. Chris, are you ready? Are you ready for the, I'm always ready. Okay. Sounds good. Um, and Halley, I know you're so busy, so thank you. We really, this was, this was great.

Halley Love: Thank you so much, Clare.

Clare Golla: And thank you all in the audience for joining me today. For more on this, check out the link to our blog in the episode description.

And if you enjoyed this episode and haven't subscribed to our podcast yet, please go to Spotify or wherever you listen to podcasts to subscribe and rate us. Also, please email us and you can email Chris to ask all of your questions, uh, with your questions and feedback to insights at Bernstein.com.