Want to make a difference in your employees life

Posted on April 26, 2010. Filed under: Uncategorized |

One and a half years ago when the financial and economic markets melted down triggering an almost complete systemic collapse, employees across the globe were in a state of panic. HR departments were in total reactionary mode as they fielded calls about their specific company retirement plan from worried participants. The real issue is what is available to provide a proactive resource to stave off these problems in the future, followed by what can be done to improve the employees’ overall understanding of their financial position so they are not using company time or resources to figure it out!

Experts agree that the vast majority of Americans are misallocated in their employer provided retirement plans (i.e. 401(k)s, 401(a)s, 403(b)s, TSAs etc.).  Some even site this percentage is as high as 70%!  All this despite the myriad of financial firms, financial planners, or financial advisors advertising their services makes this hard to believe.

You can’t open a magazine, email, or watch television without seeing these ads.  You either have the professional advisors citing their extensive personal experience in helping clients steer away from troubled waters.  Or, it’s the do-it-yourself brokerage firms extolling their latest financial tools and functionality that’s so simple to use even an infant could do it.  So why are 70% misallocated if we have all this advice and functionality available to us?

The Problem

If it can be the case that people “go without” because there are no providers for a service they need, it can equally be true that if you have too many providers the consumer just gets overwhelmed and shuts down.  In this case it’s a little of both.

On the one hand there clearly isn’t an established market of experienced Certified Financial PlannersÔ who only serve by offering specific advice to employees, without: product sales, commissions, minimum asset or income requirements, or billable hours.  Then on the other hand you have so many providers holding themselves out as “retirement experts”, “retirement advisors”, “401k specialists” etc., in which they will offer this service if you buy a product from them or will pay so much per hour or have a minimum income or net worth etc., that consumers are overwhelmed with where to turn.  Consequently many choose to do nothing and let chance take them where it may.

So why not let the plan sponsor provide this advice to the employees?  ERISA guidelines have the noblest of intentions to protect the average employee from conflicts of interest from plan sponsors.  For example plan sponsors (mutual fund families, insurance companies, brokerage firms etc.) that provide retirement plans have to walk a very careful line in what advice they can give their plan participants.  They are allowed to offer general investment and financial education to employees.  However, they need to be careful by not providing specific fund advice as to how an employee should specifically invest in what funds and in what percentages in the employer plan.  What’s even worse is that many employers don’t even know this!  They think their plan providers are allowed to offer specific retirement advice because plan sponsor representatives give seminars to employees on regularly scheduled times throughout the year or there’s an 800 number the employee can call, so clearly they have what employees are looking for and need right?  Wrong.  ERISA guidelines protect employees from a plan provider recommending investments that are better for them and not necessarily the best for the employee based upon the employee’s needs etc.  So basically employees can get general education and knowledge to learn just what questions they really should be asking regarding their retirement planning and their employer provided retirement account.  However, this advice stops here when they are really eager and hungry for the specific advice on what specifically they should do.  So where do we go from here?

The Solution

The 7th Annual MetLife Study of Employee Benefits Trends cites there is a significant difference between the top employer benefits priorities and the top employee benefits priorities.

Employers list their top priorities as retaining employees, controlling costs, increased productivity, and increased job satisfaction respectively.  This usually results in companies cutting costs and resources for employees to do their jobs (do more with less), yet this is supposed to support the employer’s quest for employee job satisfaction?

Employees’ benefits top priorities are: employer provided financial planners for 401(k), easier choices if they had personalized benefits packages, employer provided retirement planning seminars, and employers providing benefits advisors respectively.  Yet employers look at these issues as extraneous and not a necessity, let alone a priority right now.

How does a company succeed?  By successfully addressing their customers needs and wants with their products and services for the right price.  So how can an employer meet their top benefits priorities unless they view their employees like “customers”, and proactively take care of their needs and wants.  By doing so does in fact help the employer meet their top benefits priorities through improved employee retention, decreased employee turnover related costs, increased efficiencies and productivity, and an overall happier workforce.

So you can encourage the employers that you serve to explore providing a Certified Financial Planner™ focusing on providing employees all areas of financial help such as creating a budget, debt management, insurance planning and most importantly retirement planning based on the employers available options.  Also these advisors should accept and practice as an ERISA fiduciary for the quality of their advice to remove the liability from the employer for this advice.

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