The Voluntary Benefit You Never Realized was Missing

Source: https://www.voluntarybenefitsmagazine.com/

Before I got into finance 18 years ago, I started my career in advertising and I’ll never forget my first 401k meeting. 

I was at my first job; a co-worker popped his head into my cubicle and asked if I was going to the 401k meeting. What 401k meeting? What is a 401k? So I went.

A guy in a $2,000 three-piece suit stood in front of about 100 of us, explained after-tax saving, pre-tax saving, asset allocation and tossed in a few indecipherable charts and some very colorful diagrams. As I surveyed the room 80% of the folks were squinting and nodding – but the kind of nodding where you know they have no clue what he was saying. Another 10% were paying zero attention. And the final 10% seemed to be tracking quite well (I might add they were all from the finance department). Then came the question and answer session, of course I had a thousand questions … but there was no way I was going to raise my hand. I didn’t want to look like a fool and ask a stupid question. I imagine my co-workers felt the same.

I left the Meeting with a Binder, a Coozie and a Pile of Questions.

With curiosity peaked, I went back to my desk, logged on and attempted to set up my 401k. As I read through the options, I had a flashback to French 101 in college. This was a mysterious foreign language to me. So I called the HR department. They told me it was up to me to pick the funds and make my own decisions or I could call the 800 number for the 401k custodian. So I called the 800 number. As it turned out, they would only give me suggestions, not advice. So I waved the white flag of surrender. I couldn’t figure out what funds to pick. I never got my 401k set up. So I lost out – big time. Not just on the company-match, but on years of compounding return.

Education Does not Translate into Participation and Results.

The predominant theory of the 401k industry is that participants simply need more education to master the subject matter and make smart decisions.

However, Dennis Ackley, a retirement education consultant in San Diego says, “Today, 401k education is the largest failure ever of adult education. If the instructional concepts do not resonate with employees – and if they are not becoming personally motivated to learn and to save substantial amounts to reach their personally meaningful goals – then after three decades of trying, it’s time to stop using content experts to teach the basics.*”

In other words, the current industry approach is broken. A 30-minute annual workshop isn’t going to close the gap or teach you how to manage your 401k.

Where is a 401k Participant Supposed to Turn to for Advice?

Which brings me to the point of this article: with the array of voluntary products today growing and growing – from Pet Insurance to Prepaid Legal to Telemed Services – the options are vast but incomplete. We all know the reasons why these types of products are making their way into the market place: rising costs driving organizations to find new ways to provide value to their employees and remain competitive in the employment fight for top talent. But one of the most substantial benefits an employer could offer is being ignored completely: genuine 401k help.

A Voluntary 401k Advice Benefit makes a difference.

A fantastic study was done by AON Hewitt and Financial Engines in which they discovered that a professionally managed 401k can grow twice as much as one that is self-managed**. In a world where voluntary benefits are available to keep pet costs down, one would think that helping employees potentially garner greater returns in the 401k would go a long way to ensuring employees could still afford to have a pet in retirement.

 

 

 

Why Should an Employer Care About Employee 401k Missteps?

As I’ve developed my career in the financial services industry, I’ve seen repeatedly what happens with 401k plans. The 401k Rep promises to service the plan. In reality, the Rep shows up once a year, if at all, and proceeds to confuse all of your participants or paralyze them with numbers. The circle of frustration and confusion continues year after year. And as we’ve moved from traditional pension plans to 401ks over the last thirty years, it is painfully obvious that some employers still feel as if this isn’t their problem and it’s up to the employees to get this figured out. Let me open your eyes to the flaw in this mindset.

Employers may view retirement as the employees’ problem, but in reality, it will still impact the employer. Here is why: employers will not want their employees working forever. If an employer finds itself with a steadily aging employee population that can’t afford to retire, its healthcare costs will continue to rise, its salary structure will be more expensive due to the experience level of their employees, plus a myriad of other considerations.

If you can skip the lunch and learns and the countless wasted hours employee spend fumbling through trying to manage their 401k, you’ll also pick up more productivity from your employees. And employees that have confidence from getting professional help with investment selection are also more likely to increase participation and contributions; which of course offer tax benefits and reduced participation expenses for everyone.

And as previously mentioned, in all likelihood there will be better investment results for your employees.

Although there aren’t many companies that can provide Voluntary 401k Advice Benefits paid for by the employee, it is worthwhile to consider making the option available. It might just be the greatest potential benefit that has the longest lasting impact – far greater, than say Pet Insurance.

*Money.usnews.com, Why Investor Education doesn’t work – and How to Change That, April 2014

**Source AON Hewitt and Financial Engines, Help in Defined Contributions Plans 2006 through 2010.

About the Author

Kevin Conard (kevin@blooom.com) is the Co-founder of blooom and has 18 years in the financial services industry. Blooom is an online SEC Registered Investment Advisor geared toward helping individual 401k participants gets quality advice without using boring old pie charts with a gazillion indecipherable colors. See how it works: www.blooom.com.