Educating workers on personal finance helps both the employer and the employee
Articles seem to be published every day about how individuals will have to work well past retirement age because they haven’t saved enough for retirement and Social Security soon won’t be sufficient to meet their income needs.
“Saving more” isn’t the simple solution it may sound like, however. The last decade’s mortgage crisis, paired with slow wage growth, still affects wage earners, many of whom live paycheck to paycheck.
The cost of financial distress
The subsequent difficulty of saving for financial goals not only affects the individual lives of the general workforce, it also impacts the companies for which they work. Financial distress is often cited as one of the leading causes of mental stress. That stress, in turn, can greatly inhibit one’s ability to focus his or her full attention at work.
In the 2017 Retirement Confidence Survey published by the Employee Benefit Research Institute in 2017, three in 10 workers worried about their personal finances while at work. More than half of these individuals thought they would be more productive if they didn’t spend time worrying. Employees who aren’t fully present due to household financial stress aren’t an easily quantifiable business expense, but they still affect a company’s bottom line.
However, just like the proposed solution of saving more for retirement is too simplistic, it’s also not nuanced enough to suggest employers pay higher wages as the sole means of helping employees save more. Margins can be tight, and employment-related costs and benefits are typically often already a company’s largest expense.
Financial-education programs
One solution is a financial-education program for employees. Half of all respondents in the survey cited above said retirement- or financial-planning programs — as well as financial education and resources as non-monetary benefits — would help increase their productivity at work. A financial education program can help employees:
• Be smarter with their money
• Learn how to create an emergency fund
• Become educated about what saving for retirement means and how best to accomplish it
• Manage debt and understand credit
• Use savings to invest for long-term appreciation and income
The return on financial-education sessions such as these could potentially result in lower turnover and increased productivity.
Tips for employers
Employers will want to create clear, concise financial guidance so employees can make informed decisions. This also helps keep long-term employees happy. As a starting point, this guidance should offer insights related to the following financial topics and questions:
• Options. How can employees prioritize different retirement savings options?
• Rollovers. What are the available strategies for rolling 401(k) plans over to an IRA? When does it make sense to do so? How’s it done?
• Distributions. When should employees start taking distributions from retirement plans? Is it based on cash-flow needs? What tax issues should be considered? How can they coordinate with Social Security and other retirement-income sources?
• Vesting rules. Are any portions of their retirement plans not vested? Is there any planning left to do?
• Alternative ideas. Are there other options for retirement planning? How can employees transition to private health insurance from their company plan?
OregonSaves
Many small businesses don’t have a retirement plan for employees because such programs can be cost prohibitive. For employers in Oregon, however, that’s changing. In 2017, Oregon passed legislation that put OregonSaves into effect. Essentially, legislation mandates employers provide the opportunity for employees to save directly into a Roth IRA from their paycheck.
The thought behind this process is that employees are more likely to save if funds are directed into a retirement-specific savings account before they’re deposited into a general savings account or the check is cashed.
A phased timeline detailing when employers must make the OregonSaves plan available to employees can be found at www.oregonsaves.com, along with additional information about the program.
Next steps
Taking care of employees extends beyond providing them with a good job and a fair wage. Providing financial education to employees empowers them to take control of their finances and alleviate related stress while providing employers with a more stable and productive workforce.
Finding a professional who has a Certificed Financial PlannerTM certification and provides financial education for a flat fee can be a good place to start.
Chris Waetzig is a certified financial planner and certified public accountant/personal finance specialist at Moss Adams. He has worked in the public accounting and finance industries since 2010. He works with business owners and their families in prioritizing their unique goals and customizing integrated wealth management strategies. He can be reached at 503-471-1281 or [email protected].
Assurance, tax, and consulting offered through Moss Adams LLP. Investment advisory services offered through Moss Adams Wealth Advisors LLC. Investment banking offered through Moss Adams Capital LLC.
