Starting the Conversation: Linking Retire-ability and Organization Viability
Previously, I suggested that the ability of employees to retire at a normal retirement age is a benefit of as much significance to the organization for which they work as it is to them individually. Increasingly, employers recognize that it’s in their company’s best interest to do what they can to help their employees establish a firm financial footing and build toward retirement readiness.
Organizations that traditionally viewed Recruitment and Retention as the key business benefits of a 401(k) plan now have added a third R: the ability to Retire. (See The Three Rs of a Great Retirement Plan.)
Organizations benefit when employees retire on time as they’re saved the higher salaries and longer leave costs associated with greater longevity as well as the higher benefits costs that accompany an older workforce. Perhaps just as important, all employees whose finances are on solid ground and are moving toward retire-ability enjoy the greater confidence that equates with fewer workplace distractions. The cost of distractions? A PricewaterhouseCooper survey reported that nearly half of those 28 percent of employees who reported worrying over finances at work ended up spending three or more hours during the workweek dealing with or thinking about personal financial issues.
There’s value to starting the conversation among company leadership to determine how best to improve the organization’s 401(k) plan to achieve retire-ability and promote organization viability. Here are topics to get you started – look for future blogs to explore each topic area in greater detail:
- Financial Education – The most obvious way to encourage employees to make wise financial decisions today and plan for their future is to provide essential financial education. A variety of resources are available from 401(k) providers and advisors. The best programs address basic financial topics – budgeting, credit card debt, insurance, home-buying, savings – as well as retirement planning. Delivery includes a variety of formats – written materials, videos, webinars, workplace seminars, mobile applications and – optimally – personally tailored education “pushed” to employees based on their specific needs. Consult with your service providers for recommendations and involvement in developing an effective financial education program.
- 401(k) Plan Design – Many employees “mean” to take wise financial actions . . . tomorrow. Organizations can help employees step onto the path to retire-ability by using auto-enrollment and auto-escalation features, with experience showing few opting out. Other features, such as stretch matches, can encourage increased nest egg contributions, and re-enrollment strategies can help ensure employees are properly invested to earn the best return on their savings.
- Making "Proper" Investing Easy - Once employees are saving, it's important to help them invest their retirement savings properly. However, even when offered the best fund line-up, most participants lack the experience to build and manage the diversified portfolio necessary to help them reach their retirement goals. Employers can resolve this dilemma by offering simple investment chioces, with the optimum solution being a managed account program that includes individual guidance to place employees in a professional managed portfolio that fits their unique circumstances.
- Employee Communications – An essential component of promoting financial wellness is to make it a company priority. Having initial discussions among 401(k) plan decision-makers and other senior management about the cost of employees’ financial stress and the benefit of retirement readiness can result in leadership support for financial education and retire-ability strategies. Buy-in from top management helps financial wellness become a part of an organization’s culture and results in support for communications that encourage employees to use the tools in the organization’s financial wellness program.
This blog is written to help make the lives of plan sponsors easier in the process of meeting legal requirements under ERISA for their defined contribution plans. Please understand that reading this blog should not alone take the place of a one-on-one consultation regarding the needs of your specific plan, and hence cannot be a guarantee against fiduciary breaches.