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How Financial Wellness Drives Better Retirement and Tax Decisions

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Retirement plan advisors don’t typically spend the majority of their time focusing on taxes for their clients or participants. But as every advisor knows, there are interrelated decisions around taxes that can significantly impact a participant’s retirement and the economics of the plan sponsor.

The issue we face as an industry is education – and the role a plan sponsor plays in helping participants make informed decisions on their taxes today so that they maximize their retirement. Similarly, retirement plan advisors can educate plan sponsors on the economic impact of retirement plans, well prepared participants, and conversely ill-prepared participants.

There’s a growing trend in the industry and quite a few conversations happening at the Department of Labor about how plan sponsors can help participants become better consumers of retirement plan benefits. Plan sponsors who commit to educating their people stand to benefit from retirement preparedness in the long run, but finding the right cocktail of education and motivation has proven to be tricky. 

In the past 20 years we’ve seen traditional seminar programs or “lunch and learn” offerings that have never truly been successful at making the impact toward higher financial literacy. Why? Because though a participant may find a 40-minute session with an advisor in the company’s cafeteria helpful, there’s no real follow up. No relationship. No motivation to act or plan.  Employees attend, discuss their taxes, their 401(k), their mortgages, etc., and then walk back to their desk where life takes over again.

Any advisor who works with a business, small or large, would agree that reaching every employee in a way that resonates with their individual situation is daunting.  This is where today’s financial wellness programs thrive.

Financial Wellness and Taxes

Financial wellness refers to educational programs that are aimed at making participants literate, though not experts, on their financial picture so that they can make informed decisions about their investments and retirement plan options.

Today’s financial wellness programs are available on demand (thank you, technology!) and focus on taxation and retirement in a way that is convenient and engaging to the participant. They can learn at their own pace and choose from online topics that interest them. In some cases, like with GRP Advisor Alliance’s financial wellness programs, a participant can even call a certified financial planner professional to get real-time information and educational content.

These are programs that plan sponsors can offer their employees that can help them with budgeting, debt and retirement savings, which all have an impact on their annual tax bill. Best of all, these programs are perceived by participants as an employee benefit, can help them save on taxes, and in the long run, help a plan sponsor prepare their employees to retire with dignity.

Benefits for Plan Sponsors

Financial wellness programs are designed to help participants understand the interrelated nature of budgeting, debt and savings so that they can make better choices on their taxes. When good choices are made, the participant may be able to save more than they thought toward retirement. Those increased savings through a reduced tax bill leads to positive outcomes for participants. Positive outcomes for participants lead to more satisfied employees and over the long term, reduced employee expenses for the plan sponsor, e.g. health insurance costs. In 2015, the Department of Labor estimated an annual benefits carrying cost of $22,000 per employee.[1]  If 80% of a plan sponsor’s participants are ill-prepared for retirement and work three years beyond their traditional, planned retirement date, it can increase a plan sponsor’s benefits cost by more than $1 million.

Education goes a long way, and another benefit offered by many plan sponsors is employer-match contributions and their deductibility from the plan sponsors’ taxes. Employer match is viewed as a popular employee benefit and can positively impact the plan sponsor’s annual tax burden. 

Benefits for Advisors

Advisors who work with businesses should research and identify financial wellness programs that help participants make the best decisions possible so that they can minimize their annual tax bill to positively impact savings. It’s equally important that the advisor have a conversation with a plan sponsor — this is likely a CFO or someone in the finance organization — and help them understand the positive impacts of offering a 401(k), employer match programs, and the implications of both of these for the company’s tax bill.

3 Tips for Advisors

  • Research financial wellness programs and talk to the plan sponsor about which offerings best suit their participants
  • Understand 401(k)s’ short-term impact on company tax burdens, the longer term implications of well-prepared participants and the impact on benefits to the company
  • Understand and internalize the Department of Labor fiduciary standards being discussed today and the impact on retirement savings

Working in concert for the participants and sponsors, educating both parties, makes the advisor more valuable and deepens the relationship between the advisor and the plan sponsor. In addition, a financial wellness program that helps employees make good tax and retirement choices strengthens the relationship between the participant and advisor as a potential wealth management client. 

[1] Employer Costs for Employee Compensation – March 2015, Bureau of Labor Statistics, U.S. Department of Labor, June 10, 2015


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