By now, you've seen or read that helping your employees understand and manage their personal finances through employer-sponsored financial planning is one of the hottest perks around. The prevalence of this benefit is certainly growing, with both employees and employee benefit professionals.
In the annual Top Five Benefit Priorities survey conducted by the International Society of Certified Employee Benefit Specialists (ISCEBS), for each of the last three years, "Providing Financial/Investment Planning Tools" and "Increased Investment Education" have been near or at the top of the list for both employers and employees. Why is this happening and why should employers be considering this benefit?
Sins of the past. With the stock market handing out 15-20% average returns year after year for much of the 90's, who could blame people for gaining expectations that couldn't be sustained? The result was that people who came to expect that money placed in certain "lottery stocks" (high-tech IPOs) would be the quick road to early retirement. Then came the cruel slap of the tech meltdown and there has never been a greater need for financial handholding.
The rise of the 401(k). With employer-sponsored retirement plans becoming a staple of a benefit program, it also has become a larger part of an employee's overall financial picture. Managing this part is a much bigger job today.
In a recently released survey by ISCEBS entitled "New Kid on the Block: Financial Planning as an Employee Benefit", 81% of the benefit professionals surveyed felt that employees lacked the most financial awareness in the area of how they allocate their 401(k) money to the correct investments. Over the past two years, this has led to situations such as a 55-year-old employee within three years of retirement who lost a large part of his retirement nest egg because it was invested totally in small company stocks.
Many more options. Many employers take the stance that financial planning is an issue that employees should handle and is of no business to the employer. Add to that the perception of many people that financial planning is a costly adventure and you have a lot of people who don't have a clue about personal financial management. In reality, financial planning services can be offered through many vehicles, some at no cost to employer or employee.
People respond to it. In a 2000 study done by Virginia Tech, 75 percent of employees surveyed felt that they were making better financial decisions in the workplace due to the financial planning programs that were sponsored by their employer. This sense of control over financial decisions leads to increased morale, better productivity and bottom line results.
Financial planning in the workplace has grown substantially over the past 10 years. What started as retirement plan vendors sitting down with employees to help select investment options has grown into other areas such as estate planning, saving for college, and managing credit-card debt. How are employers providing these services?
Traditional financial planners
Many financial planners are packaging their consulting services for employers to help provide "group" services for employers who need it. Depending on the consultant, the cost can be as little as zero, with the consultant counting on fees and commissions from products sold. Other consultants will charge the employer a flat fee per month or per employee for a menu of services in exchange for not presenting products to employees.
Some of the planning services would include estate planning, investment selection education for the company retirement plan and advice on making smart decisions in employee benefit utilization (e.g., what health plan makes the best economic sense?).
Financial planning software
Much of the planning software for employers is focused on tools for retirement plans only, although they are slowly integrating other areas of personal finance into their programs. Pricing varies widely amongst these products, however some deals can be found since, according to the ISCEBS survey, 69% of benefits professionals don't use these services yet and only 25% of those not using the services are considering it. Employers who wish to provide modeling software for employees to calculate everything from the impact of a 401(k) contribution on their paycheck to how much that nest egg will be at retirement need only look to their retirement plan vendor to find it.
For corporations that are looking for Web-based solutions, several companies have formed alliances to develop both standalone and Web-based software programs to help employees figure out their financial futures. Some of the names of these products are mPower, Morningstar ClearFuture, and Financial Engine's Investment Advisor. Pricing varies widely amongst these products.
There are also many personal financial software products, such as Quicken and Microsoft Money that provide personal financial planning modules within their programs. Employers can provide this software to employees to use at home.
If you are not interested in aligning yourself with a specific financial planner, another idea is to provide a certain level of reimbursement for employees who choose to use their own financial advisor. This option is probably better suited to a smaller company due to the paperwork involved with verifying eligible expenses for reimbursement. But it gives the employee more discretion in choosing someone with whom they are comfortable sharing their personal data.
Benefit Planning Tip: For companies that provide flex credit benefit programs (i.e. they give employees benefit dollars to spend as they wish on their benefits), this voucher type of program would fit well into a "work/life benefit" part of the flex program. For example, you could provide $500 benefit dollars to each employee to be used once during their work career with you, and these dollars could be used for work/life benefits, such as the purchase of a computer, financial planning services, or membership dues for a health club.
Selecting the right method for you
Here are a few tips for determining how to go about providing financial planning services for your employees:
Ask your employees. One of the great injustices that HR folks tend to commit is the "I know what my employees want" line. That's true if you ask them, but many times employers make assumptions about what employees know based on the kind of work they do. Conduct surveys or focus groups with your employees to determine whether financial planning is something they need. You most likely will be surprised at where your needs are coming from.
How do you communicate? Much of how your corporate culture communicates to employees will determine the type of approach you'll use. If you have a rather technologically savvy or geographically diverse population, then Web-based software may work well. If you have a lot of employees who typically need their hand held through their benefits enrollment process, then a sit-down consultant may be the way to go. According to the ISCEBS survey, most benefit professionals feel that their employees either lack the fundamental knowledge of finances or don't feel they need to develop a financial plan. Getting a pulse of your employees in this regard will go a long way towards your decisions.
Evaluate, evaluate, evaluate. With each method, there are areas to look at to determine that you are getting your money's worth. With personal consultants, look for individuals that are held to an ethical and professional standard, such as a Certified Financial Planner (CFP).
You can go to the CFP Web site for leads on professionals in your area with this designation. For software, look for packages that are flexible enough to handle as many different situations as possible -- if you have 100 employees, you have 100 different scenarios. And with any program, try it out on a few employees to start and collect feedback before turning the program loose on your whole workplace.
Determine liability upfront. Often, the fact that an employer pays for a certain service may lead many employees to feel that it is responsible for bad or misleading advice. Take some time to determine the scope of the financial planning services and where liability lies for the advice and the subsequent decisions that are made. Reputable financial advisors will be all over this when making their presentation to you, so be wary if it isn't included.
If you are in a tough recruiting environment or are just trying to differentiate yourself and your benefit program from your competitors, ancillary services such as financial planning can make a huge difference for only a little expense. It can also boost morale, develop more productive employees and help set your company as an employer of choice.