Breaking Down the Department of Labor’s Fiduciary Rule

The recently finalized U.S. Department of Labor Fiduciary Rule is a historic ruling which has the potential to change the direction of the financial services industry. Financial Finesse CEO Liz Davidson and our Think Tank of CERTIFIED FINANCIAL PLANNER™ professionals offer our analysis of the impact of the rule on employers who offer workplace financial wellness programs to their employees.

Why Technology Alone Won’t Solve Our Financial Problems

Today there are an endless number of resources online on how to get your financial life together, yet most Americans struggle to form the right financial habits. Getting people to truly change their financial habits requires more than just technology, it demands a personal touch. Learn more about how working with Certified Financial Planners® can make all the difference in getting employees on the right financial track.

What to Do When Your Employees Can’t Retire

I’ve talked to dozens of HR pros who tell me one of their biggest concerns these days is having employees who can’t retire because they haven’t saved enough. It seems to be growing clearer three years after the recession that this could be a potential black hole for plan sponsors. In fact, the Employee Benefit Research Institute (EBRI) just released an entire study, along with best practices, to help employers adapt to the new paradigm of having older workers in their work force.

According to our research, employees in virtually all demographics are unsure if they will be able to retire. This means there is ongoing risk for employers to spend millions of dollars over time on employees who delay retirement. Here are some of the tangible costs they could incur:

• Increased health care costs. Employees who want to retire but are unable to do so for financial reasons are likely to have significantly higher health care costs on average, which translates directly into costs for your company in terms of increased health insurance.
• Higher costs in keeping older employees in the work force. On average, an employee who delays retirement costs a company anywhere between $10,000 and $50,000 a year.  If the average employee postpones retirement for three years, there is a potential for companies to spend millions of dollars a year if they have a large population of boomers who can’t retire.

But even beyond these tangible costs, employers face:

• Declines in performance among older employees who do not want to be working, or cannot effectively handle their job responsibilities, but must work longer for financial reasons. This indirectly impacts the bottom line in terms of greater absenteeism and lower productivity.
• Declines in performance among younger employees who are unable to move up the career ladder, which causes lower morale and decreased motivation.

To avoid these risks, employers can take some proactive steps to help their employees understand their retirement benefits and use them to effectively grow their portfolios. Here are a few:

Create a Retirement Preparedness program. It may be possible for the retirement plan to fund this program using money from the ERISA budget account. Some of our clients have designed substantial programs that include a variety of services to meet their employees’ learning styles and retirement education needs. Through these types of programs, employers help employees understand the way their retirement benefits work as part of their overall finances. Before you implement any kind of retirement education program, gather data on your workforce. This will help you find out where they stand, what specific issues they face, what they know about their existing benefits, and how they learn best, so that the education has an effect on the way they prepare for retirement.

Fine tune your auto-enrollment by starting with a healthy deferral rate, adding auto-escalation, and defaulting into a balanced fund that has reasonable growth potential over time. Many employers are already implementing auto-enrollment.  A recent Aon Hewitt study found that 60 percent of employers automatically enrolled employees offered auto-enrollment in their retirement plan.  The problem is that most plans enroll participants at only a two or three percent deferral rate, which is nowhere near enough to fund their retirement.  On top of it, employers often compound this mistake by choosing a stable value fund as the default investment election, virtually guaranteeing participants won’t have enough to retire. By simply setting up auto-enrollment more effectively—with auto-escalation to help employees save more—employers can set up their employees for success.

Offer incentives for employees who are able to retire early. This will make room for younger workers to advance even with older workers staying in the workforce longer. EBRI also talks about a “phased retirement” or “rehearsal retirement” option for employees who cannot afford to retire, but can work less hours or receive some of their pension benefit (if the employer offers one) while they are still working.

There are many risks to be aware of in employees delaying retirement, but the good news is there are also ways to combat them. Taking proactive steps to helping employees meet their retirement goals ensures employees who are working are doing so because they want to, not because they have no other choice.

Three Open Enrollment Communication Tips

Last year, 43 percent of employees sought HR guidance for benefits information, according to a Prudential study on benefits communication.

This many employees asking HR for help choosing their benefits creates not only a fiduciary risk for a company, it can also take a substantial toll on a manager’s time and energy.

But the questions coming into HR can be evaded with proactive communication if provided before open enrollment, and from a benefits planning approach, rather than once a year. That means making benefits communication a year-long initiative in order to help employees address their questions before they arise.

Here are some important areas to watch during your open-enrollment season so that you can establish an effective benefits planning program next year:

1) Take notes on the questions employees are asking.

If nearly half of a company’s employees ask for benefits guidance during open enrollment, that means there’s a communication gap that isn’t being addressed with traditional materials.

Handing employees a textbook of benefits information has not been effective in reaching employees—they’re often too busy to read it cover to cover, or too overwhelmed by all their options. During this season, document the questions you are receiving. Evaluate them after the chaos has settled and determine which questions appear most often.

Dig even deeper and determine the complexity of your employees’ questions. Are they simply asking questions about how to enroll, or are they asking questions about certain benefits which may require outside guidance? You can use these questions and your analysis of them to build a program that proactively addresses employees’ questions throughout next year before open enrollment so that they make more informed decisions and take less of HR’s time to do it.

2) Determine how they like to receive benefits information.

Most employees choose their benefits with very little time or research put into their options. Prudential found that 24 percent of employees choose their benefits by simply re-checking the boxes on the same benefits they had the year before. Forty-four percent said they put some research into choosing their benefits, but usually go with the same benefits as well.

Employers are missing the mark in what they’re giving employees to make benefits decisions. The most successful benefits communication is targeted to specific groups within a company’s work force, understanding that reaching employees with ways they want to learn is most effective.

Determine how your employees are seeking information and making benefits decisions through surveys or focus groups after open enrollment is over. Are employees seeking outside resources online? Are they asking colleagues for advice? By tuning in to what your employees are looking for and how they obtain it, managers can target the different groups’ preferences.

3) Communicate that benefits are a big part of employees’ overall lives.

As the effects of our economy continue to impact employees, they continue to put more importance on company-sponsored benefits.

According to a MetLife study of the American Dream, 94 percent of employees surveyed felt it was important for employers to continue to offer benefits even if they are mostly funded by the employees themselves. Making the connection to how decisions they make about their benefits during open enrollment have an impact on their personal financial lives, such as what they’ll spend in health care costs and whether they’ll be able to meet important long-term goals such as retirement, helps employees put their benefits into perspective.

Consider sending benefits information through a series of e-mails that have an educational aspect to them, such as an example of how much an employee could have in retirement if they were saving 10 percent of their income into their retirement plan. By showing employees the value of their benefits and how those benefits can help them to achieve their personal goals, managers can help employees to make the best decisions about their benefits, and even increase benefits participation.

This open-enrollment season may be chaotic, but using it to build a benefits planning strategy that educates employees about their benefits all year long will free up time for HR next season, and help employees make better decisions about their benefits. Now, isn’t that a win-win situation?

Evaluating the ROI of Financial Wellness Programs

Back in November, I talked with BenefitsPro.com reporter Paula Aven Gladych about some of the trends we were seeing with companies adding a financial wellness component to their existing wellness programs. Last year we saw more in this space than in any other type of financial education program, with over 80 percent of inquires specifically for these type of programs.

This could be the result of employers feeling the impact of employees’ financial stress on HR and company-wide initiatives as employees endure a bumpy economic recovery. A recent SHRM study found that 83 percent of HR professionals felt their employees’ personal financial issues affected them in some way at work.

But whether a company’s financial wellness program actually reduces costs to their bottom line is what ultimately determines whether it’s an effective strategy. Recently, one of our largest Fortune 500 clients evaluated their own financial wellness program to determine if it was actually achieving results.

The company followed many of the best practices imperative to achieving success (which I’ll talk more about next column) and found that their program saved the company significantly across multiple HR initiatives including cutting absenteeism, reducing turnover, boosting employee pay and benefits satisfaction, reducing health care costs, and reducing the risks of having employees who cannot retire when they want to. Here is a quick overview of the three key findings from their research:

1.)    Reduced health care costs

The company saw savings of 21.57 percent for heavy users of its financial wellness program versus 4.19 percent for non users. In its first issue of Research Works, the Partnership for Workplace Mental Health cites several surveys that show financial stress as a leading cause of stress for employees. By reducing the number one cause of stress for employees, the company was able to reduce health care costs associated with stress-caused illnesses.

2.)    Increased retirement plan participation and deferral rates

The company found that the more interactions an employee had with the education, the more they saved on average in their 401(k) plan. Participants who had one interaction on average deferred around 5.77 percent in their plan, but those who had five or more interactions deferred an average of 11 percent. This in turn reduces the company’s risks of having employees who cannot meet retirement income goals due to not having saved enough.

3.)    Improved employee financial management

The most important aspect to any wellness program—whether it is physical or financial—is behavioral change. Do employees actually improve their behaviors as a result of the program? The company found that over the course of two years, employees made improvements in major areas of financial management including reducing debt, saving more for retirement, managing their day-to-day finances better and establishing an emergency fund.

Read the full study here. http://goff.im/Financial-Finesse-ROI-Case-Study

Just How Far Behind ARE Women in Retirement Savings?

Unfortunately, there is a large gap between men, women, and the respective amount of retirement savings needed. How can financial wellness programs help level the playing field when it comes to retirement preparedness? Liz Davidson discusses research from Think Tank at Financial Finesse on what this gender gap in retirement preparedness looks like, and steps employers can take to narrow it.

Defining Financial Wellness

What is the definition of financial wellness?  Financial wellness pioneer Liz Davidson defines it as “a state of financial well being, where employees have minimal financial stress, a strong financial foundation and a plan in place to achieve future goals. As more employers focus on providing employees comprehensive and holistic benefits to be completely well, not just free of disease, it’s become obvious that helping people with their finances is a key component of wellness.