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Benefits |
When employers offer comprehensive workplace financial
education, everyone wins…employers, employees, and society. |
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A UPS Corporate Compensation Manager
says:
“The traditional approach (to employee
financial education) is to put together presentations focused
exclusively on company benefits and how to enroll in them.
This approach does nothing to provide a framework for decision
making for very different employee situations. Another traditional
alternative is to suggest employees find a financial advisor
and wash your hands of any obligation and fiduciary liability.
Neither approach provides a background for employees to feel
more comfortable in their own ability to making increasingly
sophisticated decisions regarding their financial future.
We feel that people that are economically secure in their
own lives are more productive employees.” |
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Workplace financial education remains
the best arena for reaching the most people; but it is not living
up to its potential” (Vitt, 2005). Workers are more likely
to save through the workplace than on their own; more than 8 in
10 eligible workers (82%) say that they participate in workplace
retirement savings plan (EBRI, 2005). To maximize the impact of
these savings, employers need to offer comprehensive financial education
programs that cover basic money management skills, as well as benefits
education and retirement planning. Unfortunately, too many companies
offer limited ‘benefits education’ rather than comprehensive
financial education. |
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| Since the 1980’s, the increase of defined contribution plans (primarily 401(k)s) has shifted the decision making responsibility from employers as plan sponsors to employees as plan participants. Less than 1/3 of all employees are confident in their ability to make the right financial decisions for themselves and their families (MetLife, 2003). Most employees are in desperate need of reliable information that provides them with the knowledge and confidence to adequately plan for a financially secure retirement. Given that employees may expect to spend 30 years or more in retirement, financial education needs to evolve into holistic, comprehensive programs that adequately prepare employees for the additional responsibilities they now bear (Ernst &Young, 2004). |
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Benefits
to Employers |
Financially secure employees are more
productive employees! Employees who increase their financial knowledge
will also increase their ability and confidence to make quality
financial decisions and reduce financial problems. Doing so enables
employees to focus more energy on work activities and less on financial
problems. The ultimate benefits to employers from providing comprehensive
worksite financial education include legal, financial, and social
impacts as follows: |
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Manage employer liability risks – Providing comprehensive financial education to employees helps employers manage their risk of liability as a plan sponsor and meet the ERISA Section 404(c) requirement of providing employees with “sufficient information” to make informed decisions regarding investment alternatives (Pomeroy & Reed, 1998; Bernheim & Garrett, 1996).
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Reduce expenses – Increases in employee participation in health and dependent care flex plans will reduce employer paid Social Security/Medicare taxes by 7.65% (Pomeroy & Reed, 1998). HR expenses will also be reduced when employees improve their money management skills and require fewer payroll advances, wage garnishments, and 401k loans (Joo & Garman, 1998).
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Increase ROI – Conservatively estimated, financial education provides an ROI of up to 3:1; this results from increased productivity and reduced direct costs (Garman, 1999). Financial education also helps increase the ROI for benefit programs. When employees understand benefit programs, they are also more likely to participate in them (Bernheim, 1998).
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Improve productivity – Financial education increases productivity and enables employees to focus on work activities rather than financial problems. Work-related factors that negatively impact productivity were documented in 34% of all financially-troubled employees. Productivity was found to be 30% lower for financially troubled employees (Brown, 1999).
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Reduce employee stress – Financial education helps reduce both financial stress levels and overall stress levels for employees (Bailey, 1998).
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Improve workforce planning – Increasing the financial security of employees and helping them plan for retirement also helps employers improve workforce planning and attrition rates. Financially secure employees are more likely to be able to retire when they choose rather than have to delay retirement.
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- Increase the employer’s ability to attract and retain satisfied employees – “Despite the economic pressure employers face, 75% name employee retention as their top benefits priority” (Mullaney, 2002). When unemployment is low, it becomes even more important to attract and retain quality employees; worksite financial education can be an inexpensive, attractive tool to help employers do so. Workers have identified their employers as trustworthy sources of information; and almost two-thirds of employees indicate a need for trustworthy financial advice to help them achieve their goals (MetLife, 2002). Employers offering worksite financial education can help address this employee need.
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Comprehensive financial education is less expensive and more
effective than the alternative of offering workers a 3% match
(Garman, 1999). |
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Benefits
to Employees |
Employees want financial education! Over 80% of employees indicate
they would participate in financial education and counseling if it
were available in the workplace. (Joo & Grable, 2000). When employees
are provided with financial education in the workplace, the road to
saving for retirement will be a much ‘smoother ride.’
Worksite financial education benefits employees in the following ways: |
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No matter who you are, making informed
decisions about what to do with your money will help build a
more stable financial future for you and your family (Greenspan,
2006). |
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- For issues related to aging parents – Many employees are dealing with the issue of caring for aging parents, as well as planning for their own later life. A majority of workers have aging parents, with four to five living generations of family members becoming the norm. Of Minnesotan’s age 50-59 who are providing assistance to others, 42% are assisting aging parents (Minnesota Board on Aging, 2005).
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Improve understanding and utilization of compensation and benefit programs – Increasing the use of these financial tools helps employees maximize their resources and increases the money they have available to them to achieve their financial goals. Employees who thoroughly understand benefit programs place a higher value on them (Office of Personnel Management, 2005; Storms, 1999).
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Provide employees with a ‘reality check’ – Employees, especially baby boomers, are often naïve about later life financial security decisions.
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Cost of living after retirement – Almost 6 out of ten workers (58%) have not tried to calculate how much they need to accumulate for retirement (EBRI, 2005). While many financial professionals recommend planning for a retirement income replacement ratio of at least 70% of their pre-retirement income, only 39% of employees estimate that they will need 70% or more of their pre-retirement income levels. Almost 60% of Minnesotans over 50 and 75% of those over 65 have difficulty managing money and paying bills (Minnesota Board on Aging, 2005). If their income after retirement declines, they will probably have even more difficulty.
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Overly confident - Almost 4 in 10 workers (37%) have not saved for retirement; nonetheless, they say they are confident they will have enough money to live comfortably throughout their retirement years. Many (22%) of those who indicate they are ‘very confident’ are not currently saving for retirement; 39% have less than $50,000 in savings, 32% do not have an IRA opened with money outside of an employer’s retirement plan, and 37% have not done a retirement needs calculation (EBRI, 2006).
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Social Security – Despite the importance of Social Security, over 80% of American workers cannot accurately predict when they will be eligible for full Social Security benefits (EBRI, 2004)
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Working after retirement - There is increasing evidence that many workers, especially baby boomers, do not intend to retire as their parents did. While two-thirds (66%) of workers plan to work for pay after retirement to supplement their income, only about one-quarter of current retirees report having actually worked for pay at some time during their retirement (EBRI, 2005). The reality is approximately 40% of employees leave the workplace earlier than expected due to health problems, disability, or changes in their company. Thirty-six percent of employees ages 60-74 and 15.6% of employees over 75 are ‘very’ or ‘somewhat’ concerned about having to go back to work to make ends meet (Minnesota Board on Aging, 2005).
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Complex later life issues - Comprehensive financial education encourages employees to think about all aspects of later life. Research indicates that 1/3 of the employees (ages 51-61) have not begun to think about retirement (Lusardi, 1999). Decision making becomes complex when employees are faced with the financial implications of such later life issues as changing health and independence, longer life expectancies, changing work and retirement patterns, family transitions, involvement with aging parents, and death
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Increase savings and financial security of employees – Forty percent of workers are not saving for retirement; and many of those who do save, aren’t saving as much as they would like (EBRI, 2004). While American workers are more likely to save for retirement than for any other goal, more than half of American workers (52%) indicate that the total value of their savings, excluding the value of their primary home, is less than $25,000 (EBRI, 2005). -
Reduce stress – By reducing financial stress, employees also reduce their overall stress (Bailey, 1998). Planning ahead for financial security in later life increases peace of mind, financial control and independence, choices, improves one’s quality of life, reduces the burden for others, and reduces the potential for conflict.
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Benefits
to the Community |
The local community, the state, and the nation also
benefit when employees become more financially secure.
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Financial impacts – Financially secure individuals are
more likely to be able to afford to pay for their own later
life care. Consequently, they are less dependent on the state
and federal government for subsidies to their living expenses
and health care.
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Accessibility to education impacts – Reliable, accessible
worksite financial education provides equal access to trustworthy
information for individuals of all socio-economic levels and
for all employees in worksites of all sizes, both public and
private.
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Social impacts – When employees “get their financial house in order,” they also become more engaged in the community, their children’s school, and the neighborhood (National Endowment for Financial Education, 2004). |
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Why
Benefits are Needed Now? |
Employees of all ages are becoming
increasingly responsible for their financial security. Since
the 1980's there has been a major shift in retirement planning;
the shift has been away from defined benefit plans and toward defined
contribution plans. This means that the responsibility has shifted
away from the employer and toward the employee.
Now is the time for worksite education
to make a major shift and to evolve from 'pre-retirement planning'
for a selected few to the comprehensive, holistic, later life planning
that is needed by employees of all ages. Now is the time for workplace
education to provide individuals with the knowledge, skills, and
confidence to plan for as much as thirty years of life after age
60. |
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The statistics are staggering...
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Personal savings are at the lowest point
(-0.5) since the Great Depression. (The Forum, 2006)
Americans are actually spending money faster than they are earning
it. More than half (52%) of employees report “the total
value of their savings and investments, excluding the value
of their primary home, is less than $25,000” (EBRI, 2005).
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As many as 33% of employees ages 51-61 have
not begun to think about retirement (Lusardi, 1999).
Less than half (42%) have tried to calculate the amount of savings
they will need for retirement (EBRI, 2005). When they do these
calculations, 44% change either their retirement goal or their
expected age of retirement (EBRI, 2005).
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Forty percent of workers are not saving
for retirement. A majority of workers (55%) believe they
are behind schedule when it comes to planning and saving for
retirement (EBRI, 2005).
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Workers who are saving often underestimate
how much of their pre-retirement income they will need to replace to fund an adequate lifestyle in retirement. Only 39% of employees
estimate that they will need 70% or more of their pre-retirement
income levels (EBRI, 2005).
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Many workers are overly confident about
their financial future given the lack of saving and actions
being taken to build income sources and assets (EBRI, 2005).
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More than one in five Minnesotans (24%)
currently ages 40-69 are projected to have insufficient resources for basic living and long term care in later life. (Minnesota
Board on Aging, 2005).
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Forty percent of workers are forced to retire
earlier than expected, either because of health problems
or changes at their company (EBRI, 2005). These workers are
then forced to pay for additional years of retirement and they
are often ill-equipped to do so.
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Fifty-six percent of the workers with access
to 401(k) retirement plans indicate a need for assistance in deciding how to allocate their plan assets (American Express,
2004). Even when they have savings, workers lack confidence
in their knowledge to make appropriate decisions regarding these
investments.
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Over 80% of workers are unable to identify
the age at which they will be able to receive full Social Security
benefits as one income source in later life (EBRI, 2005).
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This is a statewide priority! The Minnesota Department
of Human Services and the Minnesota State legislature recognize
the need to help Minnesotans plan for their retirement and later
life. Specific needs include:
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Working with employers to reach all workers between 40 and
70 with quality curriculum such as curriculum developed by the
University of Minnesota Department of Family Social Science.
For more information visit Financing Long Term Care for Minnesota’s
Baby Boomers, a Department of Human Services January 2005 report
to the State Legislature.
See
the Financing long term care report for Minnesota’s Baby
Boomers - January 2005
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Employees need workplace financial education
to provide the ‘financial security roadmap’ to assist
them with planning for later life.
Workers are more likely to save through the workplace than on their
own. The time has come for employers to support workplace financial
education and to enable it to reach its full potential. This can
happen only when employers provide comprehensive
worksite financial education for all employees.
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References/Research
Cited |
American Express Retirement Services. (2004).
Employee financial stress and investment advice needs, 2nd edition:
Results of the 2004 omnibus survey with comparisons to the 2002
findings. Retrieved April 17, 2006 from http://www.ameriprise.com/amp/global/docs/Financial_Stress_Survey_2004_
buckslip.pdf#search='Employee%20Financial%20Stress%20%26%20Investment%20Advice
%20Needs'. Field, R. & Vogt, V.
Ackley, D. (2002, Winter). Buy your retirement here! Sharing Ideas.
Retrieved March 9, 2006, from http://www.dennisackley.com/pdf/buyyourretirementhere1.pdf.
Bailey, W. C., Woodiel, D. K., Turner, M. J., & Young, J. (1998).
The relationship of financial stress to overall stress and satisfaction.
Personal Finances and Worker Productivity: Proceedings of the Personal
Finance Employee Education Best Practices and Collaborations Conference,
2 (2), 198-206.
Bernheim, B. D. (1998). Financial illiteracy, education, and retirement
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Contribution Plans, (pp. 38-68). Pension Research Council, University
of Pennsylvania Press.
Bernheim, B. D., & Garrett, D. M. (1996, March). The determinants
and consequences of financial education in the workplace: Evidence
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Brown, R. C. Financially-troubled employees and threats of violence
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VA.
Employee Benefit Research Institute. (2006, April). Will more of
us be working forever? The 2006 Retirement Confidence Survey (Issue
Brief No. 292). Retrieved April 19, 2006 from http://www.ebri.org/pdf/EBRI_IB_04_2006_1.pdf Helman, R., Matthew Greenwald & Associates; Salisbury, Copeland,
C., EBRI, and VanDerhei, J., Temple University and EBRI Fellow.
Employee Benefit Research Institute. (2005, March). Encouraging
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Employee Benefit Research Institute. (2004). Will Americans ever
become savers? The 14th Retirement Confidence Survey (Issue Brief
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Helman, R., Matthew Greenwald & Associates; & Paladino,
V., EBRI/ASEC.
Ernst and Young LLP Human Capital Practice. (2004). The role that
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in 410 (k) plans. Retrieved on Feb. 3, 2006 from www.ey.com/global/content.nsf/US/Human_Capital_-_Overview
Garman, E. T. (1999). The business case for financial education.
Personal Finances and Worker Productivity: Proceedings of the Personal
Finance Employee Education Best Practices and Collaborations Conference,
2 (1), 81-93. Roanoke, VA.
Gorbach, T. R. (1997). A case for comprehensive financial education
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Greenspan, A., Retrieved on March 14, 2006 from www.federalreserveeducation.org/pfed/.
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employee%20benefit%20trendspdf.pdf. New York, NY.
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ExecSummary2002EmployeeBenefitsTrendStudy.pdf#search=
'2002%20Metlife%20employee%20benefit%20trends%20survey' . New
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(2005). Goodbye to complacency: Financial literacy in the United
States 2000-2005. Washington, D.C. AARP.
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The University of Minnesota
Extension Service provides practical information to people, when
they need it. |
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