Employees dipping into their 401(k)s? Baked goods maker offers an alternative

The financial picture facing many employees is bleak.

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According to a report released last week by financial product and service provider Salary Finance, 49% of Americans are worried about their financial situation, up from 32% last year. Sixty-one percent have had less cash on hand over the last year, a 6-point increase from 2022. And 38% say they run out of money between paychecks, up from 20% last year. That financial stress is even more acutely felt by people from diverse backgrounds.

Those are realities that employees of Dawn Foods were certainly feeling. With 2,000 employees in the U.S. and another 2,000 around the world, the bakery manufacturer and distributor in 2018 started to notice a worrisome trend: About 25% of team members were taking out loans from their 401(k)s; and that was especially troublesome as only 67% of employees were contributing to their retirement plan to begin with, said Brian Coleman, vice president of total rewards at Dawn Foods, during Wednesday’s Health & Benefits Leadership Conference.

“We had to think really seriously about how we can help our employees and their families learn new ways to address challenges,” Coleman says. Because many employees, he says, “weren’t really looking at their futures.” Instead, they were getting sidetracked by high gas costs, food prices, skyrocketing rents and just trying to make ends meet. “We had a lot of folks who are really good people who were making bad decisions or had bad things that happened to them.”

In thinking about how to strengthen employees’ financial wellness, Dawn Foods wanted to create an offering that wouldn’t just give workers a short-term fix but rather could help employees and their families for the long-term.

The company connected with Salary Finance and rolled out the organization’s alternative loan offering—which gives employees the opportunity to borrow at the guaranteed lowest interest rate and pay back the loan through payroll deductions. Nearly half of Salary Finance’s loan borrowers utilize the benefit for debt consolidation; other leading causes include unexpected repairs, medical bills, legal costs and rent deposits.

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“Quite often, we find that people are depleting their 401(k)s because they have no alternative,” Asesh Sarkar, global CEO and co-founder of Salary Finance, said during the HBLC session. “But the reality is, when you start depleting your 401(k), you’re no longer thinking about your future, you’re no longer getting the employer match. And when you look at the compound interest and the money that gets taken away, it’s a very, very expensive option.”

See also: 2 key strategies to boost employee retirement savings

Loan alternative depended on messaging, raising awareness

Dipping into 401(k)? One company offers less expensive alternative
Brian Coleman of Dawn Foods (left) and Asesh Sarkar of Salary Finance

Salary Finance worked with Dawn Foods on the messaging for the rollout—the company commits to putting all employee communications in a second-grade reading level—and on efforts to drive adoption, including digital billboards featuring QR codes throughout the workplace.

And as more employees started taking advantage of the offering, leadership also tapped into storytelling to raise awareness—not just about the loan option but Salary Finance’s education and support resources. For instance, shortly after the partnership launched, an employee and her four children were evicted and living in her car—at the start of COVID.

“I called our customer relationship manager and within probably 36, 45 hours, [Salary Finance] came back with a 90-day plan for this woman and a 180-day plan and a safe place for her to live,” Coleman says, noting that he began sharing such stories not only with employees but also with the C-suite—to emphasize the business case, particularly around retention, for financial wellbeing benefits.

And as those stories circulated, Salary Finance started getting more calls. Within the first year after implementation, Coleman says, the companies had a robust set of data about who was interested in the offering, what they were using for it and why—which helped to further inform their financial wellness strategy.

“We were able to figure out exactly where the issues were and then started sending other resources and education into those areas,” he says.

Ultimately, Coleman says, the partnership with Salary Finance helped Dawn Foods reduce the volume of 401(k) loans by 40%, and employees who utilized the benefit for debt consolidation were able to save about $748 each on interest costs.

A benefit offering like Salary Finance’s alternative loan, Coleman says, should be undertaken with a keen understanding of your employee population and their unique needs.

“Each group and each person has different issues and challenges,” he says. “So, how can you present the most amount of help for any team member when they need it?”

At Dawn Foods, that meant giving employees a short-term boost—to set them up for long-term success.

“This [Salary Finance loan] was an alternative,” he says, “so they didn’t scramble their nest egg.”

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Jen Colletta
Jen Colletta is managing editor at HRE. She earned bachelor's and master's degrees in writing from La Salle University in Philadelphia and spent 10 years as a newspaper reporter and editor before joining HRE. She can be reached at [email protected]