The Unexpected Costs of the Government Shutdown

 In Retirement Planning & Wealth Management

The government shutdown is undeniably stressful for federal workers, but how much is financial stress costing the country? Retirement expert Ben Rizzuto weighs in.

At this point in the government shutdown, federal workers have had the unenviable experience of receiving paychecks reading: $0.00.

We’ve all seen stories or personally experienced how this shutdown has affected the country. Families have experienced delays in their ability to purchase a home. Businesses can’t get labels approved for products they’d like to put on store shelves. The TSA has experienced staffing shortages, leading airports around the country to close security lanes and travelers to experience significant delays.

The fallout from this government shutdown is, in a word, stressful!

While we can all agree that financial stress isn’t a good thing, we also know that it’s an inescapable part of life. As plan sponsors, the goal is to make participants feel prepared for inevitable times of financial burden so that they can make informed, considered decisions. Providing a well-defined financial wellness program or educational opportunities that highlight the long-term consequences of short-term actions can help. But first, it’s important to understand the effects of financial uncertainty. Let’s start by looking at the scope and impact of financial stress.

How Does the Financial Stress of our Employees Affect our Businesses?

A study by Willis Towers Watson helps to quantify this question.

  1. Employees who are highly stressed miss more work.
    In the study, highly stressed employees took 1.75 absence days to every one day taken by low-stress employees.
  2. Employees who are highly stressed perform worse in their jobs.
    More specifically, two types of employees were studied: field technicians and phone reps. It turns out that the field technicians were affected more by financial stress, which led to poorer work performance. The difference, it seems, may be because field technicians lacked consistent contact with supervisors and coworkers, thus they were more susceptible to the intrusion of stressors during the day.

While there may be differences based on job type, the point remains: financial stress can lead to poor job performance.

The Ripple Effect of Financial Stress

On January 2, 2019 – the eleventh day of the government shutdown – a traveler carrying a firearm boarded a flight in Atlanta and flew to Tokyo. Following the incident, the TSA determined standard procedures were not followed and the passenger did in fact pass through a standard screening TSA checkpoint. They also noted that “the shutdown was not to blame for the breach.”

Now, there’s no way of knowing the exact reason this happened, but it would seem that something else was on the minds of those TSA screeners: How long would the shutdown last? How were they working but not getting paid? Not to mention the impending financial stress that would come with the situation.

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Financial Stress Can Lead to Hasty Decision-Making

At a recent plan sponsor event, I heard nearly every benefits manager complain about their company’s loan program and how employees are putting their retirements in jeopardy by dipping into their savings too much.

Times of financial stress only increase this behavior. Behavior that was also highlighted in PwC’s 2018 Employee Financial Wellness Survey.2 In it, 47% of workers said that they were stressed about finances, and of those, 54% said they are likely to use funds from their retirement accounts to fund expenses other than retirement. Further, less than half of those surveyed have any emergency savings.

To combat the financial stress felt by federal employees the bipartisan Financial Relief for Feds Act was recently introduced that would allow federal employees affected by the government shutdown to take up to $4,000 from their Thrift Savings Plan accounts as well as IRAs and 401(k)s every two weeks as long as the shutdown continues – without the usual 10% penalty for early withdrawal. The thought behind this act is that once the shutdown is over and federal employees are reimbursed for pay not received, those retirement funds would be replenished.

One of the bill’s sponsors put it this way: “Families of federal employees should not become casualties of partisan politics in Washington.”

Sure, employees shouldn’t be casualties of partisanship, but my fear is that this bipartisanship could lead people to make bad decisions and make a casualty of their retirement security.

The problem, as we know, is that tapping your retirement account for expenses other than retirement is only going to exacerbate the stress participants feel when they get into retirement. In fact, Deloitte found that loans and early distributions from retirement accounts could lead to a $2.5 trillion shortfall in retirement balances.1

So What’s the Solution for Plan Sponsors?

We’ve talked about implementing a solid financial wellness program into your benefits program. If nothing else, this should be a catalyst to explore the financial stress levels of employees. This could be done by developing a quick online survey to get a sense of the issues employees are confronting. Another option would be focus groups where you can have frank conversations with groups of employees in different functional areas.

It’s important to review your existing financial wellness program and whether it meets the needs of your employee population. Make sure you have a consistent communications strategy in place that utilizes print, in-person, email and online content. Education programs should include topics like budgeting and saving for a rainy day, as well as basic financial literacy.

We’ve also seen some plan sponsors include physical and spiritual fitness programs in their wellness offerings.

Overall, participants should understand the benefits being offered and whether they are saving as much as possible, but also recognize the long-term nature of their retirement plan savings.

1https://www.thinkadvisor.com/2018/10/10/leakage-loan-defaults-to-spark-2-5-trillion-retire/
2https://www.pwc.com/us/en/industries/private-company-services/library/financial-well-being-retirement-survey.html

A retirement account should be considered a long-term investment. Retirement accounts generally have expenses and account fees, which may impact the value of the account. Non-qualified withdrawals may be subject to taxes and penalties. For more detailed information about taxes, consult a tax attorney or accountant for advice. Tax information contained herein is not intended or written to be used, and it cannot be used by taxpayers for the purposes of avoiding penalties that may be imposed on taxpayers. Such tax information and any estate planning information is general in nature, is provided for informational and educational purposes only, and should not be construed as legal or tax advice.
Tax information contained herein is not intended or written to be used, and it cannot be used by taxpayers for the purposes of avoiding penalties that may be imposed on taxpayers. Such tax information and any estate planning information is general in nature, is provided for informational and educational purposes only, and should not be construed as legal or tax advice.

C-0119-22143 01-30-20

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