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  • Mark Nicholas

One Change That Can Take Your Retirement Benefits From Good to Great

Most employers, and their fiduciary committees, have been trained by their service providers that exceptional plans are characterized by high participation rates, increasing contribution rates, minimal distributions (prior to retirement), and investments that consistently outperform their benchmarks. The better the metrics the better the plan. While it may provide warm, fuzzy feelings to see these metrics trending up, they only represent a small fraction of your employees' financial circumstances and are not a good proxy for their overall financial wellness. The most effective plans are not retirement plans at all, they are financial plans, and workers are desperate for advice that incorporates their whole financial picture.

Let's zoom out and get a frame of reference apart from the company 401(k) plan. Over half of American households report living paycheck to paycheck and the average American holds $21,800 in personal debt (excludes mortgage). Those with personal debt average using 30% of their income to pay it off. Another 30% typically goes towards rent/mortgage expenses. The hard truth is that most American families are struggling just to feed their families and put gas in their vehicles to get to work. Retirement isn't their top financial priority and many employees are best served putting money towards other priorities, but that's not a message that ever gets communicated to them. Frankly, there's no money in suggesting employees contribute less, with advisory and recordkeeping fees tied to assets.

Corporate retirement programs were always intended to supplement other savings. They don't work in a silo. Pushing a product instead of finding a solution has never worked well in any industry, yet that's exactly what happens with most 401(k) plans. Auto-enrollment at 6%? Check. Auto-escalation in sync with annual reviews? Check. Target date funds as the default investment? Check. There is no one-size-fits-all financial solution but, when 401(k) plans drive uniform strategies for all of their employees, they can inadvertently increase the gap between the 'haves' and the 'have nots'.

Employees want (and need) a personalized financial planner, but few are willing or able to spend the thousands of dollars that most planners charge. Instead they rely on impersonal guidance from media personalities, journalists, friends and even the plan's adviser, typically to their financial detriment. To be clear, the person that shows up at the office once a year and meets with employees for 30 minutes isn't their financial planner - they are the plan's investment adviser and there's a huge difference between the two. I mean a real financial planner, that will meet with the employee (and their spouse) to help them make financial decisions that will increase their household net worth based on the entirety of their financial circumstances, not just their plan balance!

Most plans have very similar features but, if you want yours to truly stand out from the crowd, de-emphasize retirement as a financial priority. The role of a workplace retirement benefit is to support employees as they prepare for their golden years. This includes helping them navigate financial decisions throughout their career, as these decisions have a huge impact over time. Retirement saving is just a small part of the financial picture. In order to truly support your employees and their families, you need a benefit that helps each family make the decisions that provide them the resources, knowledge and opportunity to increase their household net worth, not just their individual retirement plan balance.

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