At Microsoft, products are designed to "empower every person and every organization on the planet to achieve more." Microsoft's effort to improve its employees' long-term financial health is a perfect example of this commitment. Through an innovative strategy that combines a state-of-the-art web application, incentives and personalized recommendations, the company is leading employees toward new behaviors to make sure they'll have the financial resources to meet their future needs.
Improving employees' long-term financial health matters to Microsoft for several reasons. "Studies have shown that employees with financial problems tend to have lower productivity than financially healthy employees," said Sonja Kellen, director of global retirement benefits. According to current research by the American Psychology Association, seven out of 10 American workers experience financial stress, making it the most common type of stress. In addition, Towers Watson's 2013/2014 Global Benefit Attitudes Survey found that for U.S. workers over age 40, retirement readiness is the top financial priority.
The average age and saving habits of Microsoft's employee base also play a role. "Saving for retirement competes with many other priorities among our people." Kellen said. "We have a relatively young workforce, and retirement can feel very far off to many employees. By creating an organizational culture in which long-term financial health is emphasized and valued, we lay the foundation for comfortable and seamless retirement transitions."
A Holistic Approach to Retirement Readiness
Microsoft's focus on employees' financial health can be traced to the company's efforts to help employees become smarter consumers of health care services. Like many U.S.-based employers, the company moved away from traditional health care plans several years ago in favor of a consumer-driven approach. Since then, the company's strategy to improve employees' physical health has emphasized better health care consumerism, behavior changes and the smart use of available resources, including health savings accounts (HSAs).
Making the connection between employees' financial health and their physical health has also been a priority for Microsoft Benefits. By 2013, the company had explored a number of products aimed at helping employees understand the relationship between their health-related behaviors and long-term financial rewards. By giving employees insight into their retirement needs and the impact of certain personal behaviors, Microsoft would motivate employees to make better choices in both the physical and financial realms.
When Towers Watson's benefit communications team shared information about myFiTage, a web-based app, Kellen and her team were intrigued. The app tells users the age at which they'll likely have enough resources to retire, and shows them how changes in their health-related behaviors and saving habits, as well as specific investment decisions, could raise or lower that number.
"We've looked at options in this space for years. We liked that myFiTage generates a single, powerful number that employees can easily understand," Kellen said.
Known as the person's Financial Independence Target Age, or FiT Age, the number derives from a comprehensive assessment of a multitude of data, including the user's savings via his or her 401(k) and HSA. It factors in stock awards, government-provided benefits, federal taxes, desired postretirement living standard, wealth accumulation outside of company-sponsored plans, projected retiree medical costs and more. "There's a lot of math involved, though the employee doesn't have to get bogged down in all of the calculations," Kellen said.
To learn their FiT Age, Microsoft's U.S.-based employees don't need to enter any information into the software tool. "On the first visit, the user finds that employer-provided information, including contributions to the savings plan and the HSA, is already there," explained Shane Bartling, a senior Towers Watson consultant who worked with Microsoft on the FiT Age project. "For many employees, the funds they save in the company's savings plan and in their HSAs will be the only retirement resources they'll have to supplement Social Security and Medicare."
Kellen said it's the emphasis on age that makes myFiTage so powerful. "Traditional retirement planning apps deliver results in projected future dollars and don't highlight the value of improving health. Feedback such as 'You are projected to have $600,000 at age 65' doesn't tell an employee what she needs to know about her future and the possibilities," Kellen said. "Is $600,000 enough for her to stop working at age 65? Or is it so much that she could stop working earlier? When the focus is on money, the result isn't as meaningful."
Studies have shown that employees with financial problems tend to have lower productivity than financially healthy employees.
Employees' ability to see their FiT Age drop based on specific actions they might take — such as improving their health, increasing their 401(k) and HSA contributions, and saving those dollars until retirement — was equally compelling. For example, an individual with a FiT Age of 74 might see that number drop to 72 after maximizing his HSA contributions and reducing his use of an HSA debit card.
"By clicking on 'Suggest a plan for me,' users activate the FiT Coach algorithm that identifies and prioritizes the steps they can take to influence their FiT Age and meet their goals," said Towers Watson consultant Jessalyn Uchacz. "If a 41-year-old employee wants to be financially independent at age 62, she can click on 'FiT Coach suggestions' and see which changes will lower her FiT Age, and by how much. She'll see the trade-off she'll need to make in her lifestyle today."
Microsoft also found the high level of personalization attractive, given the range of ages and diverse needs within the company's U.S.-based workforce. "Generic doesn't work," Kellen said. "To be relevant for our employees, it has to be a personalized experience, which myFiTage is. The app is prepopulated with personal data from across all sources of the user's retirement savings, and their spouse's or partner's savings can be added. This makes the resulting FiT Age and accompanying recommendations very specific to the employee."
A Pilot and Refinement
Liking what it saw, Microsoft partnered with Towers Watson to pilot myFiTage during the company's 2013 wellness campaign. Before launching it, they used Microsoft's testing lab to gather critical feedback from test users and then modified the app as needed.
"Microsoft excels at testing products and processes, and this helped us gather crucial data on the user experience and outcomes," Uchacz said. "The testing revealed that people were getting hung up wherever they saw complicated financial terminology, so we simplified the language and streamlined the interface even more."
Eight weeks after Microsoft introduced myFiTage to the entire U.S. workforce during open enrollment, 22% of the company's non-retail workforce had used the web app. Initial feedback was positive, and before long, there were improvements in several markers of retirement readiness, including lowering the average FiT Age by one full year. Reductions in individuals' FiT Ages weren't limited to those who used the web app — the FiT Coach tips also spread through the workforce via word of mouth. "Talking about savings account balances with coworkers may be taboo, but talking about FiT Age is inoffensive and easy," Kellen said.
Over the next nine months, the Microsoft/Towers Watson team assessed myFiTage performance against the company's goals and added several new features. One of the most significant was an incentive for employees to use the app.
"No matter how innovative or useful an application is, it's effective only if people use it," Kellen said. "To round out our employees' view of wellness and encourage them to use myFiTage, we integrated FiT Coach with our annual 'Know Your Numbers' campaign that had previously focused only on biometrics and other measures of physical health. We also incorporated an incentive. To earn a $50 gift card, employees had to undergo biometric screening and visit FiT Coach. As a result, more than 27,000 employees — nearly half of our U.S. workforce — learned their FiT Age and had access to suggestions for lowering it. We were very pleased."
And the impact has snowballed. A look at the number of employees who have increased their HSA and 401(k) contributions reveals the effects of the myFiTage app, supporting communications and word-of-mouth on employee decision making. Half (50%) of the employees who have learned their FiT Age have significantly increased their HSA contributions since the company introduced the app.
In addition to the incentive, Microsoft integrated FiT Age's coaching feature with the company's other financial planning resources. "myFiTage is highly integrative with other resources employers might have in place," Bartling said, "and this connection encourages employees to use those resources more effectively."
For example, Microsoft employees have access to the services of Financial Engines, a company that offers online and in-person investment and retirement guidance for employees of Fortune 500 companies and other large organizations. After Microsoft integrated myFiTage with Financial Engines, more than 5,000 Microsoft employees used myFiTage to see the potential impact of investment risks and rewards on their retirement readiness, and then followed the FiT Coach recommendation to use Financial Engines for customized investment guidance.
"It's very frustrating to invest in a resource only to see it be underused by employees," Kellen said. "By driving traffic to Financial Engines, as well as the benefit section of our intranet site, myFiTage added value to those resources."
Positive Results for Employees and Employer
The numbers show that Microsoft's strategy for helping employees improve their financial health is paying off. In 2014 alone:
- The median FiT Age among Microsoft's U.S. employees dropped by 1.6 years.
- 9% of participating employees who had room to increase their HSA contributions did so to the maximum allowed.
- 22% of participating employees who had been contributing less than the match-eligible amount to their 401(k) plans increased their contributions to reach the maximum match.
- 13.6% of those who were contributing less than the IRS-allowed maximum increased their contributions to reach the IRS maximum.
- 8.5% of the participants who hadn't been maximizing their 401(k) contributions, but were maximizing their HSA contributions, enrolled in 401(k) auto-escalation.
- 8.5% of participants who had been allocating less than the maximum to target-date funds increased their target-date fund allocations.
Just as important, employees' perceptions of the employer-provided resources are positive. After using myFiTage, the vast majority (84%) of user survey respondents say they value the long-term financial perspective it gives them. Three-quarters (73%) would recommend it to another Microsoft employee.
"This is a great tool. It's so complicated to understand all the factors involved in personal finances, such as HSAs, stock, 401(k)s and personal savings," said one participant. Another remarked: "I had a plan in my head. It was nice to see what it looked like on paper, and I could see which small changes would help me lower my retirement age."
We liked that myFiTage generates a single, powerful number that employees can easily understand.
Employees aren't the only ones receiving important data via FiT Age. The ability to estimate FiT Ages across Microsoft's U.S. employee population gives company leaders new insight into participation rates and decision making for its benefit offerings. The benefit team can evaluate aggregated FiT Age data across different employee segments and determine to what extent the company's benefit plans are helping each group.
"Many employers monitor only data like plan participation, saving rates and investment elections. While important, these measures alone don't provide an accurate picture of retirement readiness," Bartling said. "For example, they don't answer the question: 'How many of our employees would need to work and save beyond age 70 in order to reach financial independence?' or 'Which segments of our workforce may benefit most from the tax efficiency of HSAs and Roth 401(k)s?' FiT Age provides this type of insight."
Kellen looks forward to helping more employees improve their financial health over the coming months and years. "We continue to build on the learnings from last year. Looking ahead, many of our benefit plans and other resources will allow for even more customization, including more personalized messaging and one-on-one coaching."
Customization is an important theme, and a major reason for FiT Age's success. "The data we receive through FiT Age enables us to segment our workforce based on factors such as stock-ownership levels and work groups," Kellen said. "We can see which messages employees in various segments are responding to, and then we can adjust our communication approach accordingly to encourage the desired behaviors."
"For example, 67% of a specific group of employees are enrolled in the company's high-deductible health plan, but aren't contributing to an HSA," Uchacz said. "Knowing this, Microsoft can deliver targeted messages to that group that explain the long-term tax advantages of contributing to HSAs and reinforce the importance of maintaining good health."
"For many retired U.S. workers, paying for medical care accounts for nearly 20% of their total retirement spending. When employees stay healthy, they can save the money they've put into their HSAs, which gives them a very tax-efficient way to have more resources for retirement," Bartling said. "Microsoft can deliver this message through employee communication, and FiT Age will reinforce it by showing employees the direct, positive effect on their FiT Age of maximizing their HSA contributions." (See box: The HSA Payoff)
The HSA Payoff
Many U.S. employees can expect to be in the 25% federal income tax bracket if they retire at their FiT Age. Retirees in this category would need to take $133 from their traditional 401(k) plan funds to pay for a $100 health care expenditure ($133 minus 25% tax = $100).
But if they were to take the money from an HSA, they'd need to withdraw only $100. This is because every dollar withdrawn from an HSA for qualified medical purchases is tax-free. This saves the retiree $33 in one transaction alone.
Multiply the savings across all of a retiree's health care expenditures, and the potential cost savings becomes dramatic. In addition, most U.S. states with an income tax offer the same tax treatment for HSAs, making the savings potential even greater.
Other workforce segments may need reminders about the value of Microsoft's 401(k) match. A message to these groups might explain, "You could reach financial independence eight years earlier by increasing your 401(k) contribution to get the maximum matching contribution from Microsoft. You'll get 50 cents for every dollar of your pay that you save up to the IRS limit. So when you put in an extra 6%, you'll get an extra 3% of pay."
"It's like free money," Uchacz says.
Very soon, the value of the company match will be even greater. The company recently announced that beginning in 2016, it will increase its 401(k) match from 50% of the first 6% that employees contribute to 50% of all regular contributions. With the IRS's regular deferral limit of $18,000, this means Microsoft will offer employees to match their contributions up to $9,000 per year, helping them grow their retirement savings faster.
The Bottom Line
"Ultimately, all of this information — our employees' FiT Ages, their benefit election choices and their risks of facing income shortages later in life — will allow us to determine which tools and messages will help them make the right decisions about meeting their long-term needs," Kellen said. "The FiT Age metric makes it easy to show employees that behavior changes can make a huge impact for tomorrow with only a minor effect on their lifestyle today."
Kellen and the Towers Watson team offer the following recommendations to employers about using FiT Age to help employees understand the connections among their physical health, their financial health and their retirement readiness:
Provide the path. Make it easy for employees to make plans. Without myFiTage, it would be much harder for employees to understand the effects various behaviors and changes could have on their long-term financial and physical health.
Offer incentives for usage. Employees using myFiTage are more likely to take action to improve their retirement readiness, so take steps to help them get there.
Prepopulate the tool with as much personal information as possible. The more data that's prepopulated, the more specific and meaningful the results will be for the employee. If employees receive base pay plus bonuses but only base pay is included in the calculation, you'll lose people.
Emphasize the depth and breadth of the included information. Employees appreciate a comprehensive assessment of their retirement financial plans. When they ask, "Did you take this into account?" and hear "Yes, we did!" it gives them confidence in the advice they receive. The most powerful part of FiT Age is that it tells the user something about their own life. It's more than just personalized — it's personal.
Keep it simple. Those who benefit the most from a financial reality check like that offered by myFiTage are the individuals most likely to give up on it if there's too much detail.