There’s a trend afoot in the corporate benefit arena. Financial education, once a benefit afforded only those at the plum executive levels, is moving mainstream. Savvy employers, interested in retaining quality personnel, are just now on the verge of recognizing that comprehensive financial employee education programs are instrumental in both recruitment and retention, says Virginia Tech professor E. Thomas Garman, executive director of the university’s National Institute for Personal Finance Employee Education (NIPFEE), in Blacksburg, Virginia (www.chre.vt.edu/pfee).

There are other reasons employers are offering financial education in the workplace. According to Virginia Tech research into participation in workplace financial education, employers not only seek to grow 401(k) plan participation and increase contribution levels as a percentage of salary, they want to comply with the regulations defined under Section 404(c) of ERISA (the Employee Retirement Income Security Act)—to avoid potential liability for any losses by a plan—and improve employee morale.

A company’s best workers are typically those who are in control of their personal finances, says Garman. Control in that aspect of their lives translates into increased employee productivity, he says.

The Need for Comprehensive Financial Education

 So Garman, along with other financial professionals, argues that it’s comprehensive financial education, not just retirement education, that should be afforded workers. "It’s a mistake to offer only retirement education," says Garman. Why? Employees who don’t have a handle on their personal finances are "costly to their employers."

Employers often then have to contend with poorer employee health, unnecessary absences, lower pay satisfaction, poor workplace morale, not to mention more accidents. "A substantial portion of employees" (approximately 15 percent in any given workplace), says Garman, "are spending time on personal money matters on the job, negatively affecting productivity. They are also less likely to participate in an employer’s 401(k) retirement plan."

The decline in worker productivity can be measured, outlining the extent of the cost to an employer. Garman uses the following example to illustrate the point: Let’s say there’s a decline in worker productivity by 20 percent (an employee misses four days of work in a one-month time frame of 20 working days). The cost to an employer of 1,000 people is estimated at $900,000 annually. This is calculated using an annual employee wage of $30,000 x 150 (15 percent of employees are financially troubled) x 20 percent.

"Employees have yet to be offered motivational packages to make financial wellness a priority. Employers will educate their employees on safety issues, but are still lagging when it comes to educating their employees on personal finance topics," says Garman.

David Wray, president of the Profit Sharing/401(k) Council of America (PSCA) in Chicago, Illinois, offers a slightly different perspective. "In the last 15 years, American businesses have spent billions of dollars and given up hundreds of millions of lost hours of productivity to teach adults how to become investors for life. The employer community should be lauded for this unprecedented undertaking, one of the largest private efforts aimed at adult education."

What’s prompted this undertaking? According to Wray, there’s an "emerging awareness" in corporate America that, especially in light of the extremely tight labor market where employers are competing for quality employees, the financial planning benefit to employees can be a cost-effective measure that allows employers to differentiate themselves in the workplace.

"American workers need to be lifetime investors. They need to be responsible for their personal financial lives and build a lifetime financial plan, which would include planning for retirement," says Wray. "It’s critical that employees have the tools necessary to implement that lifetime plan, monitor and maintain it. And one of those tools that companies are increasingly investigating offering is not simply 401(k) advice, but full service financial planning," he says.

Top Five Benefit Priorities

 A survey of benefit specialists across the country supports Wray’s testimony. Conducted by the International Society of Certified Employee Benefit Specialists and Deloitte & Touche LLP, the survey identifies the specialists’ top five benefit priorities for 2000. What’s atop the list? First, to keep health and welfare costs under control. The next priority is to evaluate, implement and expand use of Internet/intranet applications. The third: to provide financial/retirement planning tools and information, while the next two priorities tie for the number four spot. Benefit specialists not only will seek to increase investment education, but will work on emphasizing and improving quality of employee communication materials.

However, despite the efforts as well as priorities, there’s still room for progress. A report issued by the Society for Human Resource Management, headquartered in Alexandria, Virginia, attests to the fact that only 28 percent of employer respondents surveyed cited financial planning as a financial benefit. Well below the middle (financial planning ranked 17th out of 25 slots), the report listed on-site parking, payroll deductions, direct deposit, educational assistance and defined contribution retirement plans as the top five financial benefits.

That number does take a jump, however, when employers are categorized by number of employees. Generally speaking, the larger the firm, the greater the chance financial planning is offered as a financial benefit. For example, 44 percent of employers with over 5,000 employees answered on the survey that they offered financial planning to employees.

The trend we’re seeing today, mostly stemming from participant direction in 401(k)s, is a much more "democratic" exposure to financial education, says Gary Kushner, president and founder of Kushner & Co., a national employee benefit consulting and administration firm. No longer simply a perk for senior executives and employees approaching retirement, it’s not just a process that lasts throughout an employee’s career—it’s much broader in scope.

"It stems from the implementation of the 401(k) plan itself," says Kushner. The 401(k) plan puts employees in the position of having to decide for themselves how to invest contributions. "To realize the fiduciary protection of ERISA Section 404(c), companies are required to educate employees about their investment selections."

Bill Pomeroy, CFP, president of The EDSA (Educational Solutions and Awareness) Group, headquartered in Baton Rouge, Louisiana, speaks of the success of EDSA in marketing five separate financial education programs, each tailored to various segments of an employee population, to the corporate arena. "You’re selling 404(c) protection, increased productivity and greater appreciation of company benefits," he says.

A Relatively Inexpensive Benefit

 

What’s the cost of implementing one of EDSA’s financial education programs? Relatively inexpensive, compared with other benefits. Pomeroy says that, depending on the program or programs selected and how often a firm wants to offer them, the annual expense can run anywhere from $50 to $350 per employee. Other factors to be taken into consideration are the size of the company EDSA engages and the extent of travel involved. However, EDSA charges $500 per teaching hour, in addition to the cost of the workbooks, plus any costs of customization, at $125 an hour, says Pomeroy.

Research Study at Southeastern Chemical Producer

 

A Virginia Tech study offers a closer look at financial education in the workplace based on information gathered from employee participants at a chemical plant in the Southeast under the fictitious name, Southeastern Chemical Producer Inc. Two of the study’s primary goals: (1) to judge the value of the educational workshops afforded the employees and (2) to see "if there was a measurable increase in productivity as a result of better financial behavior." No pre- and post-test research procedures were used.

Out of 300 surveys sent out in May of 1998, 181 responded, with 178 determined as usable for the study. Of the usable survey respondents, 56 percent attended at least one of the financial workshops. The workshop most attended was "The EDSA Group, Money Basics."

What were the results? According to the study, 75 percent of the participants reported they felt they were making better financial decisions, while 34 percent started contributing to the 401(k) plan, and 45 percent increased the amount they were contributing to their 401(k). Fifty-six percent noted that their financial situation had improved because of the education, while 70 percent reported changing their investment strategy by diversifying.

CFP Board Inroads

 

On September, 8, 1998, the Certified Financial Planner Board of Standards argued before the Working Group on Small Businesses, ERISA Advisory Council, Pension and Welfare Benefits Administration and Department of Labor, for the need to "make the expertise of the CFP designee available and affordable to millions more of American workers by creating tax benefits for these services."

Specifically, the presentation lobbied "for financial planning services to receive the same favorable tax treatment accorded to qualified legal group services under IRC Section 120." This "would exclude from the taxable income of the employee the value of financial planning services provided and paid for by the employer. It would also allow for the employee to pay for financial planning services with pre-tax dollars...."

Moreover, the presentation argued for "the exemption of financial planning services from the 2 percent floor on miscellaneous itemized deductions imposed by IRC Section 67. This would allow more taxpayers to utilize potential deductions for financial planning services that could be made available through IRC Section 212(3) without being limited by the amount that exceeds two percent of adjusted gross income."

The Corporate Perspective

 

Headquartered in Tacoma, Washington, Weyerhaeuser has been offering pre-retirement planning education to its employees since the mid-1980s. Besides currently serving up a set of less comprehensive seminar programs around the country that cover the firm’s 401(k) plan, Weyerhaeuser offers comprehensive holistic life planning seminars to its employees.

Tailored to the age group or life stage of the audience, the seminars are open to all employees and their spouses and partners. "That’s a real challenge, since we employ roughly 45,000 employees in some 400 locations in the United States and Canada," says Weyerhaeuser technology planning manager Sally Hass.

The seminar format, structured with the four steps of content, reflection, goal setting and action planning in mind, is designed to equip employees with a complete understanding and appreciation of their Weyerhaeuser benefits. "We prefer to keep the audience number to 30, but we’ve conducted seminars with numbers ranging anywhere from 50 to 80 attendees," says Hass.

How does Weyerhaeuser address any liability concerns? "We invite predominantly local planners on site to assist us," says Hass. "We’re careful not to endorse any planner or firm as a professional resource. We simply endorse them as capable of presenting planning information and stress that no one at Weyerhaeuser is empowered to give any employee legal or financial advice. We do not offer a list of seminar participants to the planners. It’s up to the employee to select them as a resource."

The firm’s strategy of pulling in advisors to deliver financial information/advice is a strategy that more employers may find can actually reduce their liability. "Though it is not illegal for an employer to give plan participants investment advice, the employer does become a fiduciary of the plan," says David Bixler, CFP, president of Capital Strategies in Indianapolis, Indiana. According to Bixler, Interpretive Bulletin 96-1, issued by the Department of Labor in 1996, has, in many instances, been misinterpreted as saying not to give advice. "A premise of the bulletin was to clarify ERISA guidelines on what constitutes education and advice," he says.

Lowering Corporate Liability

 

"A way an employer can lower potential liability as a plan sponsor is by hiring an advisor, through a process of due diligence, to provide investment advice," says Bixler. By hiring and assessing an advisor, though still "on the hook" for bad advice, the employer is taking precautionary measures that ultimately can enable their employees to accumulate enough money for retirement. A plan sponsor’s odds of liability shoot up if employees figure out they could have accumulated more had they been offered better advice in the first place.

"Our biggest challenge right now is getting employers to consider financial education, which includes financial planning, a priority," says Steve Herrmann, vice president of financial education for American Express in Minneapolis, Minnesota. Oftentimes, reorganizations or downsizing activity can push it to the side. Herrmann says. "The message we’re trying to get out to employers is that financial education, used properly, can help them communicate to their corporate audience not only information about a current corporate event, but also in light of the employee’s personal financial situation."

For example, if two companies are merging, financial education can be integral in explaining the new benefits packages available. In a downsizing situation, financial education can assist employees who must decide their options in terms of career transition. "Employees will make better decisions if they can put those decisions in context of their overall financial situation," says Herrmann, who is the president of Virginia Tech’s NIPFEE as well as the chairman of the American Savings Education Council’s Development Committee.

As Herrmann sees it, though, employers are responding, through financial education companies like American Express, to employee demands for a number of access points to financial education. "Financial education has moved way beyond the traditional seminar, though that is a forum that’s still employed. We’re seeing a push toward Internet and toll-free access to information," says Herrmann. "Without a doubt, we’re moving to a world of e-financial planning. Whether it will be an intranet or Internet application, online is the wave of the future."

Statistics confirm this. According to a Hewitt Associates LLC survey of 491 401(k) plan sponsors in 1999, of the 86 percent of plans that provide investment education to employees, almost 62 percent now use the Internet to educate (up from 20 percent in the 1997 survey). What’s more, an overwhelming 92 percent of the respondents indicated that the Internet is "very effective" or "somewhat effective" in communicating investment concepts.

Linking Planners to Companies

 

Another firm behind the commitment to financial education in the workplace is LifeSpan Services in Decatur, Georgia. It’s a life-planning firm that links planners with companies interested in delivering financial education to their employees in a much more holistic manner. "We’re strictly educational," says President Rick Garnitz, who says that his firm takes a "generational approach to planning and then goes broad."

Besides an approach that boasts of the big picture, LifeSpan works a diverse client base. It has organized programs for New York Life Insurance, the California National Guard, as well as the Dayton Daily News. "We coordinate roughly 250 to 300 seminars a year across the country using a network of primarily fee-based planners in the major cities," says Garnitz.

"We offer three different seminars for three different generations," he says. There’s a half-day seminar titled "Getting Started on the Right Foot," typically offered to employees ranging in age from 25 to 35. A one-day seminar is available for those at the mid-career point who are facing the intersection of work, family and finances. And finally, there’s a two-day pre-retirement seminar geared toward those over age 50. As for the information the planners provide, says Garnitz: "Companies, by and large, are still concerned about ordaining an organization or financial planner. So they prefer the information, on such topics as asset allocation and mutual fund expenses, to be as generic as possible."

There is clearly an upward trend in financial professionals participating in the employee benefits arena, whether via seminars or a more individual financial counseling format, confirms Julyette Jacobs, investor education director at the Financial Literacy Center (www.FLConline.com), based in Kalamazoo, Michigan. The FLC is a provider of financial education booklets, brochures and books to financial professionals and employers as well as the military, who, in turn, distribute those materials to their employees. Topics include retirement planning, debt and credit management, and money strategies for all seasons.

In fact, says Jacobs, the financial community "is the channel that’s picked up our materials and used them the most to date. They use them as a marketing tool to grow their business. They can personalize our newsletters with their photo, address and e-mail address."

It’s the push into the corporate arena that’s proved more difficult. "Many companies rely on their 401(k) vendors for employee financial education," says Jacobs. But perhaps the bigger issue is employer fears of overstepping the boundaries of investment education into investment advice and the potential liability for the quality and outcome of that advice, she says.

Customized 401(k) Advice

 

However, there are firms that accept the risk and provide personalized 401(k) advice, online, for the country’s growing legions of 401(k) investors. Some of the major players: San Francisco-based 401(k) Forum, Palo Alto-based Financial Engines, Morningstar and Standard & Poor’s. There’s also Fidelity through its Portfolio Planner program and Vanguard via its Navigator Plus program.

As third-party investment advisors who assume the role of fiduciary for plan sponsors, 401(k) Forum and Financial Engines pose a series of questions to 401(k) investors to determine risk tolerance and investment time horizon. Based upon that data, they will present participants with specific asset allocation plans together with a recommended portfolio of funds, based on the options in the 401(k) plan.

"The value of Internet technology is that it brings financial education expertise down to a market of one," says Betty Meredith, CFA, CFP, CRC, president of Ann Arbor, Michigan-based Discover Learning Inc. Discover Learning specializes in providing financial institutions and corporations with self-study materials, consulting, licensable education materials and train-the-trainer programs to provide more effective financial education. "We will not be able to help the masses until there’s a way to lower costs per person. Right now, the average person can’t afford to pay for us."

Online investment advice is still in its infancy. However, a 1998 Forrester Research study estimates that the number of 401(k) investors who use online advice could jump up from 440,000 to 6 million by 2002. That’s the trend despite many unanswered questions including, for instance, how closely plan sponsors should monitor the advisor’s performance and what exactly is acceptable advisor performance.

"The goal of my work is to democratize financial planning and bring it to the masses," says Meredith, also the chair of the Communication and Education Committee for the Profit Sharing/401(k) Council. But one current hurdle to the venue of Internet advice is that "there are only so many who have Internet access." At this point, advice over the Internet is reaching roughly only 10 to 15 percent of the population, she says.

While the dynamics are changing, it’s been Meredith’s experience that neither financial institutions nor corporations have considered additional financial education their responsibility. Oftentimes, she found there was simply no place for it in the budget. "Many of the financial institutions and corporations feel that what they’re delivering in the way of 401(k) programs is sufficient."

Thus, she’s focusing on the 401(k) side because that’s where "the average person is building their wealth." According to a FIRSCO study (Fidelity Investment Retirement Services Company) of its 401(k) participants, the average per person 401(k) account balance is $60,000. "Yet, even 401(k) education programs are many times still limited to one-hour enrollment meetings. Right now, I’m working to help a major national brokerage firm create a curriculum of 401(k) programs to offer their participants," says Meredith.

On the other hand, Bruce Rosenberg, CFP, president of the Center for Financial Solutions in Schaumburg, Illinois, prefers marketing not to the corporation, but through workshops and word-of-mouth, to the corporate employees. "I’ll market at the corporate offices but as an independent, without the corporate endorsement," he says. "Not only is that endorsement virtually impossible to obtain, with liability as it is today—it’s not always in your best interests. What if you encounter an individual who’s in the throes of being terminated?"

In many instances when he does land a corporate employee as a client, "I’ll get requests from them to invoice the corporation so that the financial planning becomes a fringe benefit to the employee. Motorola, for example, offers financial planning as a fringe to its upper-level officers," says Rosenberg.

A Benefit to Both

 

"It’s a win-win situation for both the corporation as well as the employee," says Rosenberg. "The employee gets the benefit of the fringe (taxable only if it’s a discriminatory benefit, offered solely to a certain segment of the employee population) at the expense of the corporation. The corporation gets the full tax deduction," he says.

The term "win-win" resounds again and again when it comes to financial education in the workplace. Another Virginia Tech study conducted to demonstrate that financial education and advice affects employee money behaviors and outlook for the better, looked at the well-educated, high-income white-collar employees of an insurance company in three Midwestern states. The employees participated in a workplace financial education program and in a private financial advice session given on company time by Capital Strategies. Participants were surveyed both before and after the program.

Employees who participated reported better health and were more committed to their employer, says Garman. "By the end of this decade, if not sooner, large employers will realize the vital importance of their workers’ financial health to their bottom line," he says. Then, to drive the point home, Garman concludes: "Employees’ financial wellness is just as important to a firm’s shareholders as their physical and mental wellness."

Jacqueline M. Quinn is a freelance financial writer who resides in Oakland, New Jersey.