# Presentation: 514708

## Financial Empowerment in the Workplace

- An asset building pilot with Chicago employers

## The Center for Economic Progress Serves Working Families 

**Helping working families help themselves through free tax preparation and the Earned Income Tax Credit**
- 25,000+ families served through free tax return preparation at 33 tax sites in 2005 by the Center’s Tax Counseling Project
- $35.3 million in tax refunds were returned to Illinois families
- Recruited and trained over 1,000 volunteers
**Providing financial education and access to bank accounts**
- 1500+ individuals participated in financial literacy classes in 2003-4
- 2,650 low cost depository accounts opened by partner financial institutions in 2002-5
**Providing technical assistance and advocacy through the National Community Tax Coalition**
**Searching for innovative ways to better serve clients**

## North Side Community Federal Credit Union Serves Chicago Communities

**31 year-old community development credit union**
**Certified as a Community Development Financial Institution (CDFI) by the U.S. Treasury**
- $9 million in total assets and 4,000 members
- Partners with 42 employers with over 7,000 employees
**History of serving people who are not using mainstream financial institutions**
- Serve low and moderate-income people in need of low cost savings and checking and accounts
- Specialize in small loans as an alternative to predatory lenders
- Provide financial education to our members

## Why Employers? - Creating a Partnership to Provide a Benefit Package

**Reasons for working with employers and financial institutions**
- Employers provide key financial transactions
- Payroll, direct deposit, tax withholding (W-4) and reporting (W-2, 1099) , fringe benefits, retirement and cafeteria plans** **
- Employers provide regular opportunities to reach working families
- New employee orientations, employee benefit days etc
- Channels of communication – e-mail, paycheck stuffers etc
- Financial Institutions already invest in employer relationships
- Bank-at-work programs, payroll, other commercial business
**Criteria for choosing the four employers**
- High concentration of low income workers
- Close proximity to Credit Union
- Strong existing relationships with Credit Union
- History of providing benefits to low income workers

## EITC – a Work Support often Left on the Table

| Assumptions | Case 1 |  | Case 2 |  |
| --- | --- | --- | --- | --- |
| Description | Single mother with two children, filing Head of Household.  Worked full year (2000 hours) at $6.50 per hour |  | Single mother with two children, filing Head of Household.  Worked full year at $12.00 per hour |  |
| Adjusted Gross Income | $13,000 |  | $24,000 |  |
|  | Federal | State | Federal | State |
| EITC | $4,204 | $210 | $2,036 | $102 |
| CTC
Additional CTC | $0
$250 | -
- | $788
$1,212 | -
- |
| Withholding | $500 | $130 | $1,200 | $700 |
| Income Tax | $0 | - $210 | - $788 | - $540 |
| Refunds | $4,954 | $130 | $4,448 | $262 |
| Total Refund | $5,084 |  | $4,710 |  |
| Percent of Income* | 39% |  | 20% |  |

- - Avoiding the cost of paid preparers and Refund Anticipation Loans saves another **$260**:  1-3% of total income.   Assumes all filers have SSN’s, all natural children.  Tax year 2003.

***Up to 25% of your EITC-eligible workers may not be claiming it***

## Advantages to Employer of Partnering in Financial Empowerment

**Differentiate yourself as an employer**
- “Employers are finding that financial education may be an effective tool for attracting and retaining valued workers”1
- Leading employers are providing financial education and tax preparation assistance – GE, UPS, Burger King, CVS, TJX Companies, etc
- Employers who participate are recognized as leaders locally and nationally
**Improve the retention and productivity of your workforce**
- Reduce turnover through a higher realized hourly rate
- Work time lost to unexpected personal financial issues is costly
- Financially stressed employees may spend up to 20 hours per month dealing with money problems2
- Satisfied workers are more productive workers
**Reduce transaction costs by encouraging direct deposit**

- 1 – “Personal Finance and the Rush to Competence” – Fannie Mae Foundation
- 2 – “Employee Benefit Plan Review” March 2001

## Benefits to Employees of a Partnership in Financial Empowerment

**Receive free tax preparation**
- Paid preparers charge $110 for a service that a trained volunteer can provide in one hour
- Refund Anticipation Loans (RALs) cost $150 to advance a refund that could be directly deposited to a bank account in two weeks through the Tax Counseling Project
- $3.4 million dollars would have been spent on paid preparers and RALs by last year’s program participants alone
- Many working families might not file otherwise – forfeiting money they have earned
**Participate in financial education**
- Your employees will improve their financial budgeting skills
- Your employees will learn how to repair their credit and maintain good credit - expanding financial options and improving quality of life for families and individuals
- Your employees will learn the benefits of saving and participating in a 401(k)/403(b) plan, if such plans are available to them
**Benefit from Financial Services**
- Your employees will be able to use mainstream financial services to manage their money
- Your employees will keep more of their paycheck

***Up to 5% of the wages employers paid to some workers was spent at Currency Exchanges, Payday Loan stores, and other fringe financial service providers****

- * $660 annually ($110 for tax preparation, $150 RAL, $400 for Currency Exchanges, Payday Loans and other financial service providers) for an individual earning $6.50 per hour

## Challenges for Employer Based Initiatives

**Difficulties in changing employer practices**
- Human Resources staffing constraints and turnover
- New role / new type of benefit to provide
- Benefits are still perceived as nice to have, not critical
- Aversion to risks of “providing financial advice”
**Resources needed to provide services**
- Fixed cost of providing high quality tax prep services
- Time required to build and maintain strong network of relationships

## Keys for Success for Employer Based Initiatives

**Increased employer commitment**
- Training HR staff to encourage good financial behaviors, provide help w/ W-4, W-5, etc
- Resources for tax preparation and financial education at employer
**Institutionalize employer role in providing services**
- Continue to build and publicize the benefits to employers
- Work with employer intermediaries, HR associations, trade associations, unions etc
**Use existing tools and relationships to increase scale**
**	****For more information – Ed Jacob, North Side Community Federal Credit Union **_**[nosidefcu@aol.com](mailto:nosidefcu@aol.com)**__**,  773-769-5800 x 227**_