Benefits Planning: Employee Misconceptions

February 08, 2011

Over the past several months, I have observed quite a few common misconceptions that employees have voiced while we discussed their financial situation during a worksite financial coaching session.   The first, and most surprising, is how unaware employees are regarding how their benefits compare to other companies, and that many think that the grass would be greener if they switched employers for a new job offer.  Simply benchmarking your level of benefits to your specific industry can be a real eye-opener for your workforce and can be easily accomplished by communicating this information during open enrollment or at a benefits planning workshop.

Another misconception is fueled by all the recent negative press that company pensions receive.  It is true that many employees are no longer being offered a traditional pension, and others who had a pension are seeing their benefits frozen.  But there is still 17% of the workforce that fortunately will get the benefit of a monthly check in retirement, and some of these employees think that it is too good to be true.  One recent pre-retiree told me she thought she would have to work until age 90, even though she had 30 years of service towards a defined benefit pension that would be replacing almost half of her final salary.  She truly thought she could lose all of her vested benefit if the company went under or terminated the plan.  What a relief it was to her when she realized that she COULD rely on the company pension and age 65 could be a realistic retirement age.  An easy remedy to her uneasiness was the on-site one-on-one retirement planning session that was offered by her employer that enabled her to get all her personal questions and concerns addressed.

The most common misconception I typically encounter has to do with taxes in retirement.  I have done thousands of Retirement Readiness workshops, and I usually ask attendees to shout out any expenses they think will go down once they retire and I always get at least one member of the audience who yells “taxes.”  Many workers are surprised to learn that there is no tax break for retirees, and that federal taxes still apply to their retirement income.  Offering  employee education on managing retirement income for your exiting pre-retirees can go a long way in helping to prepare them for their financial future once they have cashed their last paycheck.