A workplace-based economic response to COVID-19

Ideas for protecting and strengthening household financial security

Acknowledgement: This brief emerged from a conversation, held in late March 2020, among a number of individuals and organizations who work on issues of household financial security. It is written by Alex Mazer and Jonathan Weisstub, cofounders of Common Wealth, with the support of their colleagues, but also incorporates insights and ideas from Maytree (Alan Broadbent, Elizabeth McIsaac, Garima Talwar Kapoor), Prosper Canada (Elizabeth Mulholland), Commonwealth (formerly D2D Fund) (Tim Flacke), the Aspen Institute’s Financial Security Program (Ida Rademacher, Karen Andres), Social Capital Partners (Jon Shell), Dr. Jennifer Robson of Carleton University, and André Côté (independent public policy consultant). Any errors or omissions are the authors’ alone, and the views reflected here do not necessarily reflect those of the individuals and organizations who provided input.

Key points

• Employers with financial resources and governments have an opportunity to use the workplace as a significant channel to deliver financial relief as part of the economic response to COVID-19, complementing critical supports governments are providing to individuals and businesses
• Employers may wish to consider several time horizons with their response: (1) An immediate response to deal with urgent cash-flow needs related to the crisis (2) A near-term response to help workers prepare for the uncertainty and challenges of the months ahead (3) A longer-term response to help workers rebuild their household balance sheets post-crisis
• A workplace-based economic response could include four key elements: (1) Continue coverage of workplace benefits for those affected by the crisis (2) Enhance existing workplace benefits to provide additional financial relief and protection (3) Help workers access government supports offered as part of the economic response (4) Extend workplace benefits to those without coverage today — many of whom are also most vulnerable to the crisis’s economic impact
• The economic response is an opportunity to create a more equal and comprehensive workplace-based safety net, and some temporary responses to the COVID-19 emergency should become permanent to avoid a further deepening of inequality post-crisis
• Government and business each have a critical leadership role to play in a workplace-level economic response. Businesses can look for ways to enhance short- and long-term financial security for their workforce, targeting the most vulnerable. Governments can encourage the extension of benefit security and workplace-based savings to the large uncovered parts of the workforce as a cost-effective way to encourage greater private savings and rebuild household balance sheets

A workplace-based response

While COVID-19 is primarily a health crisis, it is also a crisis of household financial security — one that will get worse absent concerted intervention. The vast economic dislocation resulting from the virus will cause very real financial hardship for millions of families. If we are not careful, the results for household economic security could be disastrous, deepening inequality, reducing confidence, and inflicting lasting structural damage on our economy.

This memo proposes some ways to think about using the workplace as a channel to be used as part of the economic response to COVID-19, both in the near term, but also — perhaps even more critically — in the longer term.

This workplace-based response is meant to supplement, not replace, critical interventions by governments to supplement income and reduce expenses for individuals and businesses. Governments have the fiscal capacity, reach, and scale to lead the way. But any governmental response, no matter how robust, will have its gaps. It will miss and provide insufficient support to some households. It will not last as long as some households require. As it does during normal times, workplace-based financial security has an important role to play in building on government programs and addressing needs the government is unable or unwilling to address.

We recognize that many employers, particularly small- and medium-sized employers or those in sectors that have been particularly affected, are struggling with their own cash-flow needs. Some may not survive this crisis. However, there are other employers who have the necessary financial resources to provide further support to their workforce, and are looking for creative ways to do so.¹ Our suggestions for employers are aimed at this latter audience.

Pre-crisis, many households were already financially precarious

Even before the crisis hit, Canadians were deeply concerned about their household finances. Affordability, retirement savings, and economic insecurity have ranked among the top concerns of Canadians for several years.

Pre-crisis, millions of Canadians households were already financially precarious. Consider the following figures:

• More than half of Canadians were living paycheque to paycheque
• One third of Canadians did not have enough savings to stay above the poverty line for three months
• Nearly four in 10 Canadians had no retirement savings
• 10 million Canadians had no access to a workplace retirement plan
• The median retirement savings among near-retirement households without pensions amounted to a mere $3,000
• Last year, personal insolvencies reached their highest level in a decade
• Last year, consumer debt was at or near historic highs

Keep in mind that these figures date from a period of tremendous economic expansion. The S&P 500, an index of America’s largest companies, rose 330% in the decade leading up to last fall — an historic bull market. Canadian unemployment was at its lowest rate in decades. And yet financial anxiety and stress loomed large.

If Canadians’ household balance sheets looked this way during good times, how will they look after a few months of social distancing, job loss, and stalling of global economic activity? We need to look for every opportunity to protect household financial security during the crisis, and rebuild it during the recovery.

The workplace is an important channel for delivering financial relief, and should be a key part of any economic response plan

The workplace is the channel through which most people access economic security. It is the primary source of most people’s income. Workplaces also provide millions of individuals with benefits, including retirement savings arrangements, health, life, and disability insurance, and employee assistance programs.

Workplace benefits are especially important when the unexpected happens. Workplace-based retirement savings plans can provide a critical source of liquidity when households face an unanticipated emergency. Insurance benefits can protect families faced with expenses they cannot handle. Employee assistance programs offer comfort and guidance to those who cannot afford other paid forms of counselling and advice.

Mobilizing the workplace-based channel as part of the broader economic response to COVID-19 makes sense for several reasons:

• It provides a way to reach people quickly through the existing benefits and payroll infrastructure
• It allows for the effective targeting of relief and communications because there is a high degree of knowledge about the workforce
• It allows experimentation with many different approaches to relief and sharing information about what works
• It provides another way for businesses and others with the fiscal capacity to contribute to the broader economic response effort

Three time horizons

The COVID crisis will affect households in different ways, and at different times. As such, employers and other workplace-based organizations may wish to consider several timeframes in crafting a response.²

• Immediate. What should be done immediately to help workers with urgent cash-flow or other needs related to the crisis? This is most relevant for workers whose health has been affected by COVID-19, who have seen a decline in household income due to a spouse losing a job, or who have seen a decline in their own income. For the millions of Canadians without material savings, sharp drops in income could mean not being able to pay rent, or taking on additional high-interest debt.
• Near-term. What should be done to help workers prepare for the uncertainty and challenges of the months ahead? For some workers, the financial brunt of the crisis will last for several months or longer, and it may not manifest itself until later in the summer or fall. Workplaces can help workers plan for and weather this period by giving them the right information, tools, and supports.
• Longer-term. What should be done to help workers rebuild their household balance sheets post-crisis? By the time the recovery begins to set in, millions of Canadians will be in a worse financial position, with fewer savings, more debt, and less family income. Workplaces have a critical role to play in helping workers rebuild their household balance sheets post-crisis to help speed the economic recovery and make their workforce more financially resilient in the event of future shocks.

Key elements of a workplace-based response

Subject to a business’s capacity to support such an effort, a workplace-based response could have some or all of these key elements:

1. Continue coverage of workplace benefits for those affected by the crisis
2. Enhance existing workplace benefits to provide additional financial relief and protection
3. Help workers access government supports offered as part of the economic response
4. Extend workplace benefits to those without coverage today — many of whom are also most vulnerable to the crisis’s economic impact

We do not have all the answers. Far from it. But we wanted to share some potential solutions for governments, employers, and other workplace-based organizations to consider as they look to protect the financial security of workers in these unprecedented times.

1. Continue coverage

The decisions businesses are making in response to the crisis are likely to affect eligibility for company benefits programs. In the ordinary course, employees who are temporarily laid off or moved from full-time to part-time may lose their ability to participate in the workplace’s benefit programs. This may cause workers to lose health, disability, or life insurance coverage at a time when such coverage could be more important than ever. It may cause them to lose access to retirement savings arrangements, health savings accounts, or pensions at a time when they may have a critical need for financial liquidity, and such workplace-based arrangements represent their only source of savings.

Employers and their benefits providers may wish to review eligibility rules to find ways to continue coverage and access to benefits for affected workers. Compared to the other measures being considered as part of the economic response, such changes could be relatively inexpensive for businesses, while providing a critical lifeline to workers. Benefits providers can support this process by being as flexible as possible in accommodating requests by employers and their workers for continuity of coverage. Further, such providers can show leadership by proactively offering to amend policies and working with employers to find creative ways to allow employees to keep their coverage.

2. Enhance existing benefits

Employers and benefits providers have the opportunity to examine existing benefits arrangements to see what changes or enhancements could be made to dampen the impact of the crisis. The scope for creativity here is considerable. Some initial ideas include the following:

• Emergency savings fund: Many employers have given or are considering giving one-time cash bonuses to employees to deal with the crisis. To maximize the impact of such contributions, employers could consider making them as contributions to an emergency savings account, rather than as cash payments. Such savings aren’t just about long-term accumulation, but can also help with short- and medium-term budgeting while helping to build or continue the habit of regular savings. This could be done through a Group Tax-Free Savings Account (TFSA) program. Because of its flexibility and penalty-free withdrawals, the TFSA is a better vehicle for emergency savings than the RRSP, and some benefits providers offer Group TFSA arrangements alongside Group RRSP or Registered Pension Plans. Health spending accounts provide another vehicle for making cash contributions. Offering emergency savings is a leadership opportunity for Canadian employers, who in so doing would be joining a trend in other countries that has not yet come to Canada.³
• Free financial counselling or planning: The crisis is likely to exacerbate already-high levels of financial stress among Canadians. Employers can help by offering employees access to free financial counselling or planning. This can be done through several channels. Some employee assistance programs (EAPs) offer help with financial topics such as budgeting and debt. Some providers offer access to financial planners as part of their service. A number of not-for-profit groups offer free financial counselling, particularly for those living on modest incomes. In response to COVID-19, a group of financial planners and planning firms, spearheaded by David O’Leary of KindWealth, is offering pro-bono financial planning sessions to families struggling with financial stress as a result of the crisis. Finally, there is a small but growing number of independent financial planners who are not connected to any particular products and who are sometimes willing to comply with a fiduciary standard.⁴
• Remove penalties on retirement plan withdrawals: Removing funds from a retirement savings account is typically not a good idea, and can crystallize investment losses in periods of market volatility. That said, in the current environment, such withdrawals could also represent the difference between solvency and insolvency for some Canadians. Employers could work with their providers to offer greater flexibility on withdrawals for those facing financial hardship. If they choose to loosen withdrawal rules or remove penalties, employers and providers could provide education to help employees understand that retirement plan withdrawals should be a last resort, and should be done in smaller increments if possible. So far, unlike some other countries, including the United States and Australia, Canadian governments have not yet loosened rules on retirement plan withdrawals in response to the crisis (see this Benefits Canada article for more detail on this issue).
• Allow employees to stay in the retirement plan post-employment: Many capital accumulation plans in Canada do not allow members to stay in the plan after they leave their employer. If members do stay with the provider, they often face considerably higher fees. One low-cost way for employers to provide a significant financial benefit to employees is to allow former employees to remain members of their workplace-based plans. This allows these workers to continue to benefit from the advantages of workplace-based plans (e.g., lower fees) after they have left their job or entered retirement.
• Sick leave and caregiver leave: While governments have already begun to take steps to strengthen mandatory sick leave protections in the wake of the crisis, employers have the opportunity to further enhance these programs to go beyond legislated minimums. They could also consider enhancing programs to provide leave to care for a sick loved one, such as an elderly parent, a spouse who works in a high-risk sector such as health care, or another relative who contracts the virus and requires care. Employers could also top up EI sickness benefits so employees receive close to or full equivalent of their regular salary.
• Student debt relief: An increasing number of workplaces are offering their employees assistance with student debt repayment. Adding such a benefit at the current moment could be especially helpful as a supplement to student debt relief that governments are likely to offer.

3. Help workers access government supports

In ordinary times, many people in need do not know how to access government benefits to which they are entitled. Given how quickly governments are responding to this crisis, creating new programs and changing rules on existing ones, it is even more important to provide support to workers in accessing government supports.

Employers, unions, associations, and others involved at the workplace level have an important role to play in helping their employees and members access government supports. Potential measures for doing so include:

• Running webinars for employees or members on government supports. Laid off employees could be invited to join as well.
• Sharing information about government supports in employee and member communications. In addition to government-provided information, more and more citizens are producing materials to help Canadians understand and access these programs (Dr. Jennifer Robson of Carleton University has created this helpful overview of programs, and a group of volunteer technologists has created a simple 3-minute survey to help Canadians figure out what federal and provincial COVID-related programs they might qualify for).
• Going beyond providing information and education, and providing direct assistance to employees in applying for programs, including helping them navigate what programs they might qualify for, and how to apply
• Building education and support about government benefits into human resources procedures related to layoffs and reduced hours.

Employers can also help workers affected by COVID get the most out of government supports by adjusting their own workplace policies. For example, employers could give more flexibility to workers who have school-age children at home so they do not have to use the Emergency Care Benefit until someone gets sick, including allowing them to bank unworked hours and work them off over the course of the year.

4. Extend benefits to the uncovered

Access to workplace benefits is unevenly distributed. If you are a modest-income earner, a service-sector employee, a gig-economy / non-standard worker, or a worker within a smaller or medium-sized not-for-profit, you are less likely to have access to workplace benefits. And if you do have such access, your benefits are likely to be of lower quality: you will pay more for less.

The crisis has brought to the fore what many who work on these issues have known for a long time: those workers not covered by the traditional, employer-based benefits system number in the millions — and growing.

There is significant overlap between those who will be hardest hit by this crisis and those who are least likely to be covered by workplace benefits. Data from the US suggests that the bottom quartile of earners is about six times less likely to be able to work remotely than the top quartile. Many service-sector workers, in warehouses, grocery stores, home health care, delivery services, and more, are continuing to work through the shutdown, facing greatly increased health risk compared to the average person. Those who work for small and medium-sized enterprises are more likely to face layoffs, reduced hours, or salary cut as a result of the virus.

That’s why a major part of the workplace-based response to the COVID-19 crisis should focus on those left behind by the current workplace benefits system, including modest-income earners, non-standard workers, and employees of small and medium-sized businesses. Reaching the uncovered is more challenging than continuing and enhancing benefits for those who already have them. It will require a greater role for government and other non-employer organizations.

If employers have the capability, the following is an initial list of actions that could form part of this response — particularly in the longer term:

• Employers, especially those with large precarious workforces, can extend benefits coverage to more of their workforces, including part-time workers, front-line, low-wage workers.
• Non-employer organizations with access to large numbers of workers, including unions, professional associations, industry or sectoral groups, franchisors, payroll providers, platform companies, and temp agencies can set up portable benefits programs to serve those without access to employer-based benefits. Such programs would not only serve those currently uncovered; they could also function as a critical protection for currently covered workers who may be laid off in the future and who cannot take their workplace benefits with them.
• Because of the additional challenge of reaching those without access to traditional benefits, governments and private-sector funders (including philanthropic foundations and CSR departments) should provide funding for experimentation and innovation in these areas. Such funding could catalyze additional voluntary action by employers, and therefore have a powerful multiplier effect.

Some of the workplace-level economic response should become permanent

The economic response is an opportunity to create a more equal and comprehensive workplace-based safety net. To avoid a further deepening of inequality post-crisis, some of the temporary responses to the COVID-19 emergency should become permanent.

Employers will, of course, make their own case-by-case judgments about which benefits changes, if any were implemented in response to the crisis, they may wish to make permanent. Some of the reasons they may choose to do so include:

• The short-term benefits prove to be more effective at driving recruitment and retention than other elements of the business’s compensation package
• Through the crisis, employers and particularly senior business executives may learn more about the precarity of their employees’ financial lives, and about the impact of financial stress and precarity on the productivity of employees. This may change the approach they take to employee benefits in the future
• The employer is looking for a way to differentiate as the labour market tightens and the recovery sets in
• Employers may find that helping their employees access and maximize government benefits and programs during the crisis is a cost-effective way to provide them with additional financial security, and they may wish to make this assistance permanent

Governments have an even stronger interest in permanent changes to the workplace-based safety net. The crisis is already showing the societal cost of household financial precarity — and its ultimate cost to governments, who will inevitably emerge from the crisis with historic deficits. While dealing with the immediate response to the crisis, governments will also need to consider how to rebuild household balance sheets once the crisis subsides in a way that does not permanently impair government finances. Encouraging workplace-based savings, benefits, and insurance is one way for governments to do just this, as is encouraging private savings. The following are some ideas for measures for governments to strengthen workplace-based financial security and private savings as part of a broader economic recovery package:

• Create a Canada Saver’s Credit to help low- and-modest income people build emergency and longer-term savings in TFSAs. This proposal borrows from — and improves upon — a US version of this tax credit.
• Create a portable benefits innovation fund to encourage the creation of retirement and other workplace-based benefits, with a focus on lower- and moderate-income workers and precariously employed workers⁵
• Ensure tax expenditures to incentivize saving and asset building are equitable across income quintiles, so they are generating strong value for money in incentivizing private savings
• Build financial help (e.g., tax and benefit assistance, financial counselling) into public services targeted to low/moderate income households where evidence shows this will improve target service outcomes and build financial health of service users
• Establish a Canadian equivalent of UK Money and Pension Service which provides debt advice through community-based providers, online and telephone money management support, and personalized financial advice to every citizen as they approach transition to retirement
• Create a tax credit for small and medium-sized employers to begin offering their employees a workplace savings / retirement plan

Endnotes

[1] Just Capital is tracking how America’s largest corporations are responding to stakeholders in relation to the crisis. The Financial Health Network has compiled a list of actions their member institutions are taking to support their employees in response to the COVID crisis.

[2] This three-part framework is borrowed from Timothy Flacke, Executive Director of Commonwealth (formerly D2D fund — a U.S. not-for-profit with no formal connection with our company, although we have a great deal of respect for their ideas and work).

[3] See, for example, BlackRock’s Emergency Savings Initiative. BlackRock has committed $50 million in philanthropic funding to support this initiative in both the US and internationally.

[4] The recently created Financial Planning Association of Canada is an example of this.

[5] For more detail on portable retirement benefits and ideas for how to make more such benefits available, see this report by the Aspen Institute Financial Security Program and Common Wealth.