I hope everyone is doing well during these challenging times. Financial markets have been volatile and that certainly has an impact on your 401K plan. Employees are likely spending considerable time thinking about this and other aspects of their financial lives. While no one has a precise blueprint for how the 401K landscape will look a year from now, I have been at this a long time and do know that employees will always need and appreciate help and guidance. In my last article, I discussed where the puck was going in the 401K space and that in my view, it is going towards employee education and financial well-being. The term in my industry is “financial wellness”.
The economic shutdown is fast tracking the adoption of new ways people will live: how we will travel, where we will work, how we will shop, etc. I think the same can be said for financial wellness programs. A robust education and support system for your 401K plans will become a necessity to attract and retain talent moving forward. This support system is important to maintain a healthy 401K plan, and times like these are exactly why that is so critical. Employees should feel like they are prepared for events like this, playing offense rather than defense.
What is Financial Wellness?
The premise of financial wellness is to create a balance between financial well-being today while preparing financially for tomorrow. This includes addressing behaviors that promote positive financial decision-making as well as identifying those that might negatively impact an employee’s financial situation. Helping employees understand and manage their finances is an ongoing process because life happens and priorities, needs, and goals change. Finances are connected to all areas of our lives and employers who understand the need to provide support and focus on employees’ financial wellness will be in the best position to recruit talent in the future.
In Bank of America’s 2019 annual Workplace Benefits Report, employees were asked to rank their financial wellness program features. “Advice from a professional” ranked number one, followed by “information on financial topics separate from 401(K) education”. The report revealed that 53% of companies today offer financial wellness programs compared to just 24% back in 2015. This is the ninth edition of the report and it tracks the importance of benefit programs and uncovers an expanded set of opportunities for employers to improve their employees’ financial wellness. It is based on a nationwide survey of 996 employers and 804 employees.
Most record keepers like Vanguard, Fidelity, Ascensus, and Voya have financial wellness components built into their offerings, but they do little to engage employees. Many of you may have found yourself in the position of offering advice to employees; and while it is fine to share past experiences, giving financial advice is not your role. It is the role of the plan advisor to work with human resources and benefits coordinators to educate employees and to build out a financial wellness program. This can be done, for example, following 401K committee quarterly meetings, with breakout sessions for employee age groups to focus the discussions more efficiently. Advisors should make themselves available in the workplace afterward for one on one meetings (teleconference for now) and signup sheets can be used to schedule offsite or after-hours meetings for others.
Why is This Important?
Employees cannot make the right decisions about their 401K’s without taking all other aspects of their financial lives into consideration. Also, real advice and guidance from advisors cannot be given unless they too know the full picture. I recommend employers engage advisors who will go beyond giving advice about what investment selections employees should make. That decision is important of course, but they should be discussing topics like having emergency savings; something that is proving critical for many people in our environment today. For employees who have debt outside of a mortgage or student loans, are they working aggressively to pay that off? Financial markets will certainly not beat the usury interest rates charged by credit card companies. It sounds counterintuitive, but sometimes our advice is to stop contributing to the 401K to handle this obligation first. Are employees taking the appropriate amount of risk in their 401K’s? Those who had a panic–like reaction to the swift drop in financial markets in March are probably not invested appropriately. It is normal to feel trepidation when markets move sharply lower, but with the right guidance, investors should understand how their investments may perform during times like this. With that knowledge in hand, they will be mentally prepared for periods of extreme volatility and less inclined to do anything drastic. We offer financial planning for all employees, especially those nearing retirement and spend considerable time discussing risk and the importance of continuing to follow their plan during uncertain times. Some people will be drawing on their retirement accounts immediately following retirement while others may wait until they are required to. Time plays a big role in discussing how much risk someone should be taking and what an appropriate asset allocation looks like.
Financial wellness can also help drive improvements in employee health, quality of life, and productivity in the workplace. The American Institute of Stress reports that workplace and financial stress costs U.S. businesses $300 billion each year, or roughly $1,685 per employee. Effectively, engaging an expert who offers financial wellness services to help manage and reduce employees’ stress can pay for itself!
What Can You Do?
- Find out what your record keeper offers in terms of financial wellness platforms. It will typically be a digital solution built into the employees’ online access. Most of these come at no additional cost and while some are better than others, anything is a good start.
- Have human resources or a benefits coordinator engage with your plan advisor to review the financial wellness platform and come up with a plan of action to address employees and promote its use.
- Make it part of your corporate culture by scheduling recurring meetings where the advisor can discuss relevant topics to a large group or to smaller age specific groups.
- Benchmark your plan. Survey employees to get a better understanding of what they care most about to ensure these sessions are time well spent for everyone.
- Engage an independent advisor to be your advocate if you haven’t already.
My firm works as an advisor and co-fiduciary to corporate 401(K) plans in the construction industry. We work with many UTCA member firms to build education programs designed to engage employees and provide them with the knowledge to create positive outcomes in their financial lives. Employees are counting on your firms 401(K) plan to provide for them in retirement, be sure they have the tools and knowledge to use this equipment safely. Call me, Mike Meyers, at (732) 291-3338 for more information or to schedule a plan review.
Disclaimer:
Mountain Hill Investment Partners is an SEC Registered Investment Adviser. We have a clearing and custody relationship with Fidelity Brokerage Services LLC, Member NYSE/SIPC.
