Benefits July 11, 2014

Considerations for Employee Financial Literacy Programs

July 11, 2014 (PLANSPONSOR.com) – Financial literacy programs can help employers get  employees more engaged in smart decision-making and planning for their retirement.
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People have a great deal of information competing for their attention; they are subject to ever-increasing bombardment, Bellaria Jimenez, managing director of MetLife Solutions Group, tells PLANSPONSOR, noting that the Internet is a special contributor. “The more accessible information is, the more complicated our world is,” she says. “People are confused.”

Plan sponsors have a chance to make a difference by educating their workers so they can meet their goals, and one way to provide education is through a financial literacy program. As well as helping people understand investments, Jimenez says, these programs help participants deepen their understanding of finance and the reason for good financial behaviors. They learn why they’re allocating money for the future, and how it ties into their own goals and considerations.

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Personal circumstances can be varied, and they add to the complexity of decision-making, Jimenez says. Through financial literacy programs, participants learn to view their individual situations and weigh the best financial decisions unique to their families. Personal feelings about investing, risk tolerance and time horizon are factors to examine, as well as family circumstances—from single parents, to those caring for aging parents as well as young children.

Jimenez points out that financial literacy and financial wellness are not identical though they may share some features. Financial literacy serves individuals who need an overview of financial basics. Jimenez says literacy for all types of people can be provided, from people who need to know how to open a bank account to those who are trying to understand a specific goal and how to fund it, such as saving for education.

Financial wellness programs are for those people who already have a grasp of the basics but are not sure how to bring their awareness to the next level, Jimenez says. “Someone could do a great job of saving, but they never thought about insurance needs,” she says. “It’s looking at the full spectrum to keep the financial health of that household, including saving for retirement and having the right protection.”

Plan sponsors can assess financial literacy programs on several fronts. Look for a program that really provides participants with a full financial picture, Jimenez says. The program should also be specific to the demographics of the group. For example, information technology firms or departments tend to have younger employees, and they may not be particularly open to learning much about retirement. This group might be more interested in learning about financial health.

A plan sponsor might want a financial literacy program that focuses on retirement planning, but helps participants understand their entire financial picture and not just investment selection. A good program will help them factor in other assets, such as a pension or Social Security benefits.

What does the organization’s work force need? Jimenez asks. Some financial education programs are geared toward women, who tend to have more interruptions in their careers. Stopping work for a time can create some financial challenges; a financial literacy program can address what strategies women can use to protect their finances, such as continuing to save in a spousal individual retirement account (IRA), or making contributions to their own IRA, if working part-time. Participants can gain some understanding about how Social Security will be affected if they leave the work force.

Providers of financial literacy programs usually have a product to sell, and the plan sponsor should do their due diligence about the organization in order to really know the products and the firm’s track record. Jimenez suggests that a good question for a plan sponsor to consider is, “Are we trying to just provide a product for employees to set money aside for retirement? Or do we want an organization that fully supports what they do with education for participants?”

Jimenez recommends asking providers for literature about their financial literacy program as well as an example of the education it would provide, given the specific demographic of the employees.

If the plan sponsor is approached by a provider offering financial literacy, Jimenez says it is reasonable to ask for a sample presentation. If the plan sponsor uses more than one provider, companies should be asked how they would keep a program neutral so employees are not pushed unfairly in one direction to purchase products.

Many people turn to their employers because they’re short on time to figure out financial information on their own. As an added value to the employee the plan sponsor can offer programs that help shore up participants’ financial understanding. “Life is happening around us,” she says. “It’s hard to stop the clock and say, ‘I have to plan.’"

Products July 11, 2014

Fidelity Offers Roadmap for Improving Retirement Outcomes

July 11, 2014 (PLANSPONSOR.com) – Fidelity Investments has launched an initiative to help employers evaluate and improve the retirement readiness of their employees.
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The Retirement Vision 2020 initiative has a central Web page, which contains a seven-minute video, as well as links to a related white paper, “Retirement Vision 2020: Fidelity’s Prescription to Help Drive Better Outcomes,” and infographic. This content highlights a four-step approach to improving retirement outcomes for employees and help them better prepare for retirement.

These steps include:

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  • Designing the retirement plan for income;
  • Accounting for health care expenses;
  • Engaging and empowering employees via guidance and access to resources; and
  • Helping employees transition into retirement with confidence.

Designing for Income

Fidelity recommends designing a 401(k) plan with a targeted income replacement goal, keeping in mind factors such as other benefits offered and overall plan demographics.

Doug Fisher, senior vice president of Thought Leadership and Policy Development for Workplace Investing at Fidelity Investments, tells PLANSPONSOR that over the last few years, Fidelity has noted factors that are causing employers to question whether their plans are doing a good enough job of preparing employees for retirement.

One factor is several generations now coexist in the workforce, and not all of these age groups have the same retirement needs or preferred method for receiving information, says the Boston-based Fisher. Another factor is employers are now living with the third generation of defined contribution plans and are beginning to question whether these plans are helping employees save adequately for retirement.

“These factors led to conversations with plan sponsors, including the need for employers to have a snapshot of how employees are doing when it comes to income replacement for retirement,” says Fisher.

Accounting for Health Care Expenses

Fidelity encourages both employers and employees to recognize the role health care expenses are likely to play in retirement. Health care options such as high deductible health plans (HDHPs) and health savings accounts (HSAs) can potentially increase employee savings opportunities.

Fisher notes that plan sponsors are aware of increasing health care costs and are rethinking their health care benefits strategies to address this issue, as well as the impact of health care reforms such as the Patient Protection and Affordable Care Act. Part of evaluating the effectiveness of their retirement plans, says Fisher, is ensuring that health care costs, for both pre- and post-retirement, are part of employees’ decisions about saving.

Engaging and Empowering Employees

Fidelity promotes the importance of providing employees with guidance about retirement and easy access to resources, which can drive engagement and affect behavior.

In terms of engaging employees, having multiple methods of delivering information is important, says Fisher. Designing content to be viewed via tablets, smartphone/mobile technology and the Web should all be included.

Helping Employees Transition

Plan sponsors should not only prompt employees to think about their future, but also assist them with decisions.

Fisher notes that one of the growing areas of interest with regard to engagement is the retirement readiness of employees age 50 and older. For this age group, services such as retiree health care transition, income replacement, Medicare selection and evaluating portfolio income generation come into play.

“For these issues, it’s important to start talking about them with employees earlier in their careers,” says Fisher. “You can’t afford to wait until the employee turns 65 and just assume that everything is going to be okay.”

What to Do Next

“The four main strategies outlined in our material act as a framework for employers to consider. Underneath these strategies, Fidelity can provide employers with related data and analytics, as well as products and services,” says Fisher.

He adds, “All employers have different needs, but reviewing the information on our Retirement Vision 2020 page can kick off a conversation with plan sponsors about how their plan is doing and what can be done to improve it.”

While services are only available to those with Fidelity retirement plans, Fisher points out that “the basic framework outlined in the white paper can be used by any retirement plan, regardless of whether it’s under Fidelity.”

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