Employers Should Make Pre-Retirement Counseling More Meaningful

By Norse N. Blazzard and Judith A. Hasenauer

For some time now, many larger employers have been providing employees with financial counseling before they retire.

We have observed much of this pre-retirement counseling and have concluded that it is often perfunctory at best–merely a half-hearted attempt to satisfy perceived requirements with little meaningful information being imparted. Yet, with current economic conditions and increasing longevity across the board for all workers, the need for workers to obtain significant information in order to plan their retirements is essential.

Most of the counseling sessions we have observed tend to focus on elementary investment strategies such as asset allocation, diversification and the like. These sessions usually do not include any information about the tax consequences of the various methods of taking pension distributions and, worse, nothing about longevity planning.

Few, if any, workers seem to recognize that taking an IRA distribution for “life expectancy” does not guarantee a worker against outliving the funds available for retirement.

Indeed, actuarial tables indicate that more than half of all retirees will outlive the life expectancy tables promulgated by the Internal Revenue Service. This means that most of those who have tied up all of their retirement funds in only life expectancy distributions are bound to run out of money before they run out themselves.

After sitting in on hundreds of these pathetic pre-retirement counseling sessions, we have asked employers why they do not have more substantive material presented. Why do they not permit financial professionals to participate? And why do they not sponsor products that will protect employees from the risks the employees will encounter in retirement?

They universally answer that they do not want the liability that attaches to sponsoring products and providing meaningful advice.

They tell us they believe that if something goes wrong with a sponsored product or proffered strategy, our friendly plaintiffs lawyers will try to hold them responsible.

While this may merely be more “lawyer-bashing,” it nevertheless results in retiring employees being deprived of essential information and products that can safeguard the remaining years of their lives.

We understand that there is a move afoot in Washington to free employers from any liability that would result from the provision of more meaningful information prior to retirement. This is a positive development, and we only hope that the end result enables financial professionals to participate in the offering of sponsored products to retirees.

These sponsored products should include those that permit retirement funds to be rolled into life contingency annuities and life insurance and investment products that will enable retirees to hedge against living too long, dying too soon and having their assets eroded by inflation.

Few employers have any appreciation of the almost abject lack of knowledge that exists among most of their employees about financial matters. Even executives in nonfinancial fields have little of the knowledge that is essential to plan for retirement.

In a society where few people can easily calculate the standard amount of a tip on a luncheon bill, the ability of these same people to calculate what they will need to retire safely is nonexistent.

If few employers have any appreciation about the ignorance of their employees about financial matters, they have even less appetite for providing the hands-on guidance that will ameliorate this ignorance.

It is essential that those who are professionals in providing financial advice, products and services be afforded a role in this developing area.

It appears that most employers are unwilling to bear the expense of hiring financial counselors for their employees. Therefore, they must enable those people who routinely provide such services and who have the tools to complete the task to do so.

Unfortunately, the likelihood of employers permitting financial professionals to help them and, more importantly, to offer their employees sponsored products is lessened by the continual problem raised by how such people get paid for their services.

Financial products are traditionally sold on a commission basis. Worksite marketing is no exception. Likewise, the financial industry has traditionally provided products to employees where the employer sponsored the arrangement at a much lower cost than with individual sales.

What we need now are products and financial counseling services provided together in partnership with the employer.

Technology should enable the financial services to help employers to provide better information and products to their employees. Access to Web sites containing retirement information and tutorials certainly can help. However, there is no substitute for direct personal contact and advice from a financial professional to ensure that retiring employees understand the challenges facing them, the options available, and the action necessary to implement the correct options.

If employers can be freed from the risks of providing meaningful counseling and sponsoring necessary products and services, and the financial services industry will encourage appropriate legislation and develop technological tools to teach employees how to plan for an effective retirement, we can make partnerships that will help working Americans to maximize their retirement years free from financial concerns.

Norse N. Blazzard, JD, CLU, and Judith A. Hasenauer, JD, CLU, are attorneys in the Ft. Lauderdale office of Blazzard, Grodd & Hasenauer, P.C. Their e-mail address is: Norse.Blazzard@bghpc.com.


Reproduced from National Underwriter Edition, March 24, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved. Copyright in this article as an independent work may be held by the author.