Retirement plan advisors don’t typically spend the majority of their time focusing on taxes for participants. However, there are interrelated decisions around taxes that can impact a participant’s retirement and the economics of the plan sponsor.
The issue we face as an industry is education, and the role that a plan sponsor plays in helping participants make informed decisions about their taxes today so that they maximize their income in retirement. Similarly, retirement plan advisors can educate plan sponsors on the economic impact of retirement plans and 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 an impact on higher financial literacy. 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)s, their mortgages, etc., and then walk back to their desks 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, 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 to help them with budgeting, managing debt and saving for retirement, 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, can help a plan sponsor prepare their employees to retire with dignity.