A stronger financial future starts the first day on the job
Choosing a retirement savings plan can be the most stressful part of the onboarding process for new employees. Sometimes, determining how much to invest means determining how much more will be taken out of the paycheck that could have gone to rent, car payments, student loans, credit card bills or so much more. Because of that fear of not having enough, some new employees, specifically millennials, opt out of a retirement savings plan before investing a single penny.
In these situations, it is the responsibility of an adviser to educate these new employees on what they could be sacrificing. Paul Markowich, CFP, AIF, executive vice president at Firstrust Financial Resources, says there is a major disconnect among employees’ understanding of benefits and the time, energy and money that employers put into them.
“In the old days, there was a benefits fair, but today people don’t have time or energy for that, and they don’t even know what questions to ask,” Markowich says. “We focus on financial wellness – connecting the dots between employee education and what the benefits are; breeding more loyalty to an employer.”
Markowich compares an adviser to a doctor, saying when someone is sick they look to the expertise of a medical physician for a diagnosis and treatment. Educating employees on how to make smart retirement savings decisions should be no different by receiving that knowledge directly from an individual who is trained in that field.
“I think the financial adviser needs to be the one delivering the education workshop,” he says. “If you have anyone other than a skilled professional delivering your education, you’re not going to get good results.”
When educating employers, advisers should be making them aware of what is available in the marketplace, to be aware of what is happening in the financial education arena and to know who is standing in front of their employees delivering the information to ensure they are a creditable source of knowledge.
How to encourage enrollment
One method to ensure strong enrollment in a retirement savings plan is the introduction of automatic enrollment. Markowich says if the employee is enrolled into the program without the requirement of opting into the program, they will be less likely to opt out of the savings plan if they do not see the change in their compensation between pay periods.
“In a hiring packet there would be a piece of paper that would say, ‘You are automatically enrolled at contributing 2% of your pay into the 403(b). If you do nothing, this is what will come out starting on day one. If you want to change it to zero or a higher percentage, here is the form to change that.’” Markowich says.
Tom Parks, director of retirement services at Annex Wealth Management, says more companies to invest in automatic enrollment because employees are less likely to opt-out once they have been enrolled, and employees will have fewer excuses as to why they cannot start investing in the plan once the option has been offered.
“I tell people all of the time, ‘You are going to have to make a sacrifice,’ there is no question about it,” Park says. “The only question I have for them is, ‘Are you going to make the sacrifice now, or are you going to make it later?’”
Markowich suggests employers do away with the traditional methods of onboarding and instead have new employees receive a more hands-on way of understanding and choosing their benefits through face-to-face interactions with experts or HR professional, or using video content to educate new hires and even hold annual benefits training days to maintain comprehension across all staff members regardless of their age or experience.
“Right now, we are telling people, ‘Here’s all of your orientation papers, you complete what you need to do,’ and most people just skip through that information forms and throw it in a drawer and they don’t actually act on these things that are really important for them,” he says.
Richard Behrendt, director of estate planning services at Annex Wealth Management, says employers have a fiduciary obligation to ensure employees have all the necessary information to make an informed decision on how to intelligently plan their benefits.
“It’s not enough to just say, ‘OK, here’s the paperwork. You’re on your own.’ Employers have an ethical obligation, if not a legal obligation, to provide some educational material,” Behrendt says. “Good employees are compensated in different ways and one of them is helping them plan for a successful life, which includes being able to retire someday.”