“Government rules are increasing an employers’ responsibility in helping employees understand their financial position.” – James Denny

At one time, financial education in the workplace consisted of meetings with retirement- age employees to explain the defined benefits package they would receive when they “earned their gold watch.”

In today’s business environment, meetings like those are a thing of the past. As the breadth of retirement plans, and the options within each plan, increase, employees’ knowledge about their benefits continues to decrease. As a result, the responsibilities of employers to assist their employees in understanding their financial position are being heightened by increasing government rules – and some not-so-gentle persuasion.

Financial Education — when does it begin?
Employee financial education is currently a hot topic, and there is every indication that it will increase in need and desirability. But, is the retirement phase the only place where financial education is needed in the employment cycle?

University studies strongly suggest that employee financial education should begin long before the retirement question arises. Of the many studies I have read on this subject, the one that stands out in my mind was conducted for the U.S. Navy by the Military Family Institute of Marywood University in 1997. The study concentrated on how personal financial matters impacted on-the-job performance of both enlisted personnel and officers. The study found that the total cost, including direct costs, lost productivity, recruiting and training new members, due to financial difficulties of the service members was between $172 million and $258 million annually.

While no member of SMC approaches the size of the U.S. Navy in terms of employment, consider how many “lost hours” might be prevented at your company if personnel didn’t place themselves in the position of having to deal with personal financial issues.

How it is – and how it might be
Typically, employee financial education programs today consist of a presentation on 401(k) plans. Presentations may be scheduled annually, but they tend to slip in importance as the day-to-day issues of running a company crop up. At best, the process provides some information, without much education.

Enlightened company management considers a broader view. They ask, do our employees know how much they need to save for retirement? Do they understand how to draw down retirement income without depleting the principal too quickly? (There is a wise old saying that the fear of outliving your money is just as great as the fear of death.) Will our new retirees be mentally prepared to wake up on Monday and not have a 30-year old routine to follow?

A friend of mine, who retired a few years ago, is a perfect illustration of the challenges. For almost 30 years, she “lived for” the company and embraced the company philosophy. In short, she was the company. The day after retiring, she felt as if she had no being. It took quite some time – and anxious searching – to find herself again. To gain an insight to the employee side of retirement, read “Retirement for Two” by Maryanne Vandervelde, Ph.D. It’s a fun and informative book.

Dare to be different
Commit to scheduling that annual education meeting and actually have it? Approach the issue from a holistic point of view — providing financial education coupled with a short presentation on the psychology of retirement? Get employees thinking about “Will I have the money to retire?” and “Who will I be in retirement?”

“An employer’s best workers are typically people who are in control of their personal finances and contribute to their pension plan. These employees are happier with their financial lives and it shows in their work.” (E. Thomas Garman, “Personal Finances and Worker Productivity”, Volume 2, Number 1, June 1998)

Again — Why?
The obvious question is, why should a company invest hard earned dollars in providing employee financial education if there is no direct, traceable impact on the bottom line? The answer is also obvious: many companies won’t.

However, companies that are pursuing a strategy of corporate excellence – where top-quality employees and top quality performance are paramount – are beginning to embrace this ongoing approach to employee financial education. They see the positive impact that employee financial education can have. Recruiting and maintaining personnel becomes easier when employees and prospective employees know the company cares about its individuals. You can create a corporate culture where individual development and company growth go hand-in-hand. Employee Financial Education is an integral part of the process.

The Profit Sharing/401(k) Council of America (PSCA) is a nonprofit association advocating increased retirement security through profit sharing, 401(k) and related defined contribution programs.

20 N. Wacker Dr., Suite 3700, Chicago, IL 60606 312-419-1863(phone)  312-419-1864(fax)  psca@psca.org