Many employers go to great lengths to design benefits packages that include retirement plans, only to have employees fail to take full advantage. Often there is a gap between employees knowing about these benefits and taking the actions necessary to capitalize on them.
A recent survey by AIG VALIC’s Financial Planning & Education Center of one of the nation’s largest employer organizations found that 80% of employees who were taught critical elements in financial planning took immediate action. Of these employees, 54% made changes to their investment allocations, 38% increased their current contributions to a retirement savings plan, 32% started saving for financial goals, and 31% took action related to insurance benefits and policies.
Clearly there is a compelling need for better financial education in the workplace. Unfortunately, current education programs often fail to address the gap between knowing and doing. By providing a structured financial planning and education benefit to employees, employers and plan providers can play a powerful role in helping workers prepare for retirement.
The need for financial education
What Your Peers Are Reading
In the 21st century, retirement is a phase of life that can extend for decades, not just years. Yet studies indicate that workers are not preparing adequately for their financial future. In fact, many workers don’t know how much income they will need to live comfortably in retirement.
According to the 2004 Retirement Confidence Survey by Employee Benefit Research Institute (EBRI), 58% have not calculated how much money they should have saved by the time they retire. The same survey found that 54% of workers believe they will be eligible for full Social Security benefits earlier than the law permits.
This shows that better information is needed to help employees fully understand the challenges they face, and the actions they must personally take to meet them.
Benefits for employers
In many cases, AIG VALIC has found that employees simply don’t have the tools to apply the information available to them to their personal situation. While they may have information about their retirement plan, they don’t always know what to do to maximize its value.
When employers successfully bridge this gap by providing helpful tools to workers, they demonstrate their concern not just for the work performed, but for employees’ welfare beyond the workplace. Employers also show commitment to managing fiduciary responsibilities as defined in ERISA Section 404(c); they increase morale and productivity among employees who, when worried about financial matters, may become distracted and less productive; and they increase participation in retirement plans.
Elements of an effective education program