Multiple times today I've heard reports and seen documentation of "advisors" telling their clients that in order to accommodate the DOL's Fiduciary Rule, they need to make substantial changes to their investment menu. Folks, this is a dirty lie. Read on to find out why.Read More
We're all about employee education when it comes to finances and the company retirement plan, but there's a new trend we've found disconcerting: Financial Wellness Programs
As a quick overview, these are programs that promise to help your employees improve their financial savviness and situation through some sort of education process. There's definitely a need for it:
- 43% of the American workforce is financially illiterate -- S&P Global FinLit Survey in 2015
- The average rate for employees taking loans against their 401k is 14.6% -- PSCA's 58th Annual Survey of Profit Sharing and 401(k) Plans.
- 70% of Human Resources professionals surveyed said financial problems impact employee performance -- SHRM 2014 "Financial Wellness in the Workplace Survey"
- Half of plan participants said they were absolutely certain or very likely to increase their 401(k) contributions if they had less debt. -- T Rowe Price Retirement Saving and Spending Study
- 31% said they would have more for retirement if they had emergency savings. -- T Rowe Price Retirement Saving and Spending Study
Here's what you see in these programs. Often they'll provide tools that aggregate bank accounts, retirement accounts, and other financial accounts to show a more complete financial profile for the individual. Education and literacy components are aimed at helping employees increase knowledge and make better saving and spending decisions. Coaching and behavioral programs often have lots of content and benchmarks, combined with education on the next steps to reach a goal. Services and products can be incorporated to help employees take that next step, like visiting with an estate planning specialist.
However, the proof is in the pudding. Results are often dismal and programs go underutilized. Why? Kristen Burman of the Duke Dollars and Sense Lab points out some fundamental problems. Mainly, we're not rational actors. We don't always do things that are in our best interest. Other things (shallow will power, outside factors, time is short, loss aversion) come into play in our financial behavior and participation in these programs, not to mention problems with the structure and delivery of these types of programs.
Education programs alone aren't very effective. Say I ask you for three things you could do to make your financial life better. Chances are you could give me very thoughtful, specific responses. This is one problem -- you know what you should do already, but you're not taking action to do it. In fact, this is common across the board.
This was illustrated by Madrian and Brigitte (and outlined later by Bernartzi) in a 2005 experiment where it was found that those who had attended an education meeting for enrolling in their retirement plan took very similar actions to those that had not attended one. 100% of meeting attendees said they intended to enroll in their plan in 2 months (after all, these were college professors and knew the importance of saving for retirement!) but only 14% joined within 4 months. 7% of non-attendees signed up in 4 months. Turns out, education doesn't equal action.
Like other education, financial knowledge decays over time. Even large interventions with many hours of instruction have negligible effects on behavior 20 months or more from the time of intervention.
If you ask someone to take action, you might also find that decision-making and taking action can be influenced by what happens right before the question is posed. "Framing" or priming someone with a bias is an important behavioral technique that can shape how you make a decision. Subjective versus objective knowledge play a part as well.
So is content the problem? No, according to studies involving spending lots of money and hiring Bollywood actors in India for a top-notch amazing education video.
How about adding goals? If you get someone to commit to a goal, it's more likely they'll complete the tasks to get there and achieve that goal, right? Turns out that you're only slightly more likely to complete the goal.
What if you put a counselor or coach in the picture? Now you're talking. Accountability is a very important component for moving the needle in these types of programs. The same study found that there was a 13% increase over just education alone in this type of scenario. Anecdotally, I have stats per client where I've been able to do group meetings versus group plus one-on-one meetings after, and you bet the numbers are tenfold higher for people taking action during or after the one-on-ones.
So pulling this back together, are financial wellness programs a good idea? Yes. Are they effective? In large part no. The majority of programs require participants to overcome inertia to sign up, are education/goal setting based only, and they don't have an accountability component built in. I think we're just not there yet but technology is evolving to allow us to better take advantage of some of the more effective types of interactions. Research in this field has yielded a ton of insights over the last 10-15 years that will only make these types of programs better.
What to do next:
If you choose to implement a financial wellness program now, choose carefully. Here are our tips:
- Make sure you're clear on the outcomes you want for your organization and that the curriculum aligns with those
- Consider your budget. Is it cost based on all eligible employees or just those that choose to enroll?
- Ask how they make money -- is it from advertising or does revenue come crom cross-selling additional products/services to your workforce?
- Ask for information on how their program was designed and why (see studies above), as well as how it is delivered
- Examine their data reporting capabilities and obtain their data on outcomes with similar sized/industry organizations
- Look to see if this program will integrate with your other benefits as well.
Need help sizing up a financial wellness program for your organization? We can help. Contact us today.
Hot off the press from the IRS! No changes to the contribution amounts for 401k and 403b plans for next year. The limit on these plans remains $18,000 with a $6,000 catch-up for those turning age 50 or older. IRA limits also remained the same at $5,500 with a $1,000 catch-up.
Other limits pertaining to retirement plans:
- Total that can be contributed by the employee and employer increased to $54,000
- Annual compensation limit considered for retirement plan benefits increased to $270,000
- Annual compensation of “key employees” in a top-heavy plan increased to $175,000
- Annual compensation of “highly compensated employee” definition remains at $120,000
Cost of living changes were made to other limits including:
- deductibility for IRAs based on income
- income phase-out for Roth IRAs
- income limit for Savers Tax Credit
Visit https://www.irs.gov/uac/newsroom/irs-announces-2017-pension-plan-limitations-401k-contribution-limit-remains-unchanged-at-18000-for-2017 for more information and details.
John Oliver raked the 401k industry over the coals in his show. In part 1 we talked about why he was right -- it's insane that any financial advisor could get away with selling a 401k plan to a business and not really providing any worthwhile services in exchange for the payment! Now for three items that need more exploration.Read More
In a very, VERY small nutshell, the point and purpose of the DOL’s recently released proposed fiduciary rule is to level the playing field for all financial professionals interacting with retirement plans…that is, group plans (401k, etc) as well as IRAs. It establishes an enforceable fiduciary standard of care DOL believes to be consistent with the Employee Retirement Income Security Act.Read More
Fiduciary liability can feel like an incredible burden to bear, even for HR professionals. Job requirements day to day are demanding enough without adding retirement plan management on top of it. That’s where a fiduciary financial advisor comes in to help carry the weight of it all.
It’s like being entrusted with a heroic mission, much like Frodo Baggins in Lord of the Rings. Financial advisors are like the Samwise Gamgee’s of the story, the unmovable support that can carry you forward when you’re overwhelmed.Read More
For growing companies at an inflection point within their human resource capacity, a retirement plan philosophy provides a clear reference point for what’s important and what’s not within an organization, for both employees and executive leadership.Read More
When it comes to building your retirement plan, before you do anything you need to know what your prime directive is in relation to benefits and retirement for your employees, your company culture, and the sustainability of your business.Read More
Go with us as we trace the evolution of Target Date Funds and other QDIA options and why your default investment actually needs just as much, if not more scrutiny than the rest of your investment lineup.Read More
Don't be caught off guard! Beginning in 2015, IRA owners will no longer be able to complete more than one 60-day rollover in a 12-month period, regardless of the number of IRAs they own. Read on for more details.
As someone who is well-studied in the art of communication (in the classical sense, not media), and can reference plenty of passages from The Art of Rhetoric on ethos, logos, and pathos, I can tell you what most often gets overlooked is the most fundamentally important: What you say matters.Read More