Smart Money

With the stock market tanking and the economy wracked with turmoil, more employers are stepping up to provide their employees with financial education and advice.

Friday, August 1, 2008
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Employees are increasingly looking to the workplace as a source of financial and retirement-planning advice, recent survey data suggests. At the same time, many employers are surrendering their traditional skittishness about making such advice available -- in part for the same reason they had originally been reluctant to do so: Fear of litigation.

Previously, employers tended to worry about being sued by employees for being the source of bad advice on investments. Today, those concerns are being overtaken by anxiety that, during a period of severe equity market volatility, "plan participants are going to say, 'You lost my money,' " says Dorann Cafaro, general partner of Cafaro Greenleaf Retirement Plan Advisors in Little Silver, N.J.

In other words, workers may hold their employers responsible for failing to provide them with an adequate education about how to invest their retirement-related assets and plan for retirement.

Indeed, Cafaro has been spending a lot of time lately talking to employee groups about stock market volatility, trying to help them put it in perspective and stay invested.

The fact that Cafaro and others like her have been busy lately -- and expect their businesses to remain strong -- comes as no surprise to Bill Mullaney, president of New York-based MetLife Institutional Business.

MetLife's 6th Annual Benefits Trends Study, released earlier this year, revealed that 49 percent of employees want their employers to provide retirement advice, and another 44 percent desire access to general financial-planning advice at work. Those numbers are up slightly from 2005, when 44 percent of employees said they wanted their companies to provide advice and 37 percent desired access to general financial-planning advice.

"You are seeing employers being more willing to provide advice and guidance, under the umbrella of education," Mullaney says.

Though Cafaro hasn't seen any litigation on this yet, she doesn't rule it out.

"Perhaps when all the suits over [plan] fees and company stock die down, the next wave of lawsuits may focus on financial education -- or the lack thereof," she says.

"A Huge Impact"

Not all employers are motivated by fear of litigation, however. Mullaney says employers that offer financial-planning and retirement-investment services can increase their employees' appreciation for the value of their benefits -- and, hence, the value they ascribe to their employment.

For Annette Grabow, manager of retirement benefits at M.A. Mortenson, a Minneapolis-based construction company, it gets personal. "I got sick of hearing, 'I can't afford it,' " she says, referring to a common response from employees when she urged them to fully exploit the company's 401(k) plan.

To Grabow, it was clear that employees needed an education -- and not just about handling stock market volatility. The basic problem, she says, is that workers were intimidated.

"They didn't understand finances in general," she says. "They didn't know how to live so that they could afford" to get the most out of the 401(k). So, about seven years ago, Grabow committed to an ambitious, multi-faceted financial-education program for the company's approximately 2,000 salaried and non-union hourly employees. (Mortenson's 1,000 or so unionized employees are covered by a separate retirement plan and do not participate in this educational program.)

Topics covered by various one-hour workshops at Mortenson's offices and construction worksites include personal budgeting and credit management, estate planning, estimating retirement-savings needs and investment basics.

"We had been with one 401(k) recordkeeper that didn't do anything for us" in terms of retirement and financial-education support, Grabow says. So an important criterion in selecting a new vendor was its educational resources. Mortenson chose a vendor that was subsequently acquired by Wells Fargo.

But the broad scope of Mortenson's financial-educational offerings means that Grabow hasn't simply delegated everything to Wells Fargo. For example, when she reviewed Wells Fargo's educational resources on the topic of estate planning and found them unsatisfactory, she hired an estate-planning attorney to cover that topic.

On the other hand, she was pleased with the performance of a Wells Fargo economist, who has given employee presentations on the state of the economy.

Grabow believes so firmly in the learning component that that she attends all key events. "We think education has a huge impact, but you can't just throw materials at them -- you have to make the effort," she says.

Inquisitive Engineers

Mortenson's comprehensive, mix-and-match workshop-based approach to employee financial education isn't the only way to go. Other employers may choose, for example, to bring in outside expertise and focus more narrowly on investment issues. That was the case with Warren, N.J.-based Anadigics, a manufacturer of power amplifiers for wireless devices.

"We wanted a firm that could provide us with independent assessments of various funds, and could conduct seminars and individual counseling," says John E. Warren III, the 700-employee firm's vice president of worldwide HR and corporate services.

He retained Dorann Cafaro's firm for this purpose. Cafaro provides quarterly "lunch and learn" sessions at Anadigics' headquarters.

"Our employee population is very engineering-centric; they question every change we make" in the 401(k) investment line-up, Warren says. Cafaro's workshops on investment issues have satisfied their educational needs thus far, he adds.

Cafaro has been talking to employee groups a lot lately about stock market volatility. "We show them the power of being able to buy stocks at lower prices with dollar-cost averaging," she says. "We have done this during prior times of volatility. Employees come back to us and say, 'Thank you for holding me during that volatile period.' "

Employees can pose questions to Cafaro and her team via a toll-free telephone service.

Mountain America Credit Union, a West Jordan, Utah-based company with 60 branches and approximately 800 employees, took a somewhat more technology-based approach to financial and retirement education. Mountain America uses "Educated Investor" online courses produced by San Diego-based Precision Information.

"We've found that whether you have 50 or 200,000 people, employees' financial needs are incredibly different," says Joe Saar, Precision Information's CEO. "We let people leverage technology to create a personalized financial lesson plan, so that people get something unique to their needs."

Given that Mountain America's employees are broadly dispersed throughout its branch system, the Internet-based Educated Investor program proved to be a more practical choice than dispatching trainers to address workers directly, says Suzanne Oliver, the company's senior vice president of educational services.

Oliver, who learned about the Educated Investor product at a trade show, favored it because she believes employees can learn more through online learning than workshops. "If employees don't understand something, they can re-do that portion," she says.

Employers can monitor Educated Investor learning outcomes by comparing employees' pre-course benchmarking quiz results with final test results. They also have the choice of receiving pass-fail rates for their employee population, or getting into the weeds and reviewing individuals' scores.

At Mountain America, the effort wasn't only intended to help employees raise their understanding of investment and retirement subjects for their personal benefit. The courses were also intended to build their confidence in discussing these topics with credit-union customers, with the goal of steering them to appropriate Mountain America retirement-related savings and investment products.

Assessing the Results 

Depending upon the educational resources incorporated into their primary retirement-plan vendor's service package, employers may not feel the need to obtain financial-education services a la carte. In fact, the ability of a vendor to offer these services is often a key selling point for clients.

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That may have been the case when Mestek Inc., a Westfield, Mass.-based, 2,300-employee manufacturer of heating, ventilation and air conditioning systems, switched 401(k) plan providers in 2007.

David DeBell, the firm's vice president of HR, says one of his goals was to find a vendor that could help plan participants make more appropriate investment decisions. "Employees were defaulting into the lowest-return option," he says. "But there's only so much we can do as a company" to address the issue, he adds.

Mestek's new plan provider, Newark, N.J.-based Prudential Retirement Services, provides "tremendous educational opportunities," DeBell says. One such opportunity is an online retirement-income calculator that lets employees plug in a few basic variables to get a rough estimate of future retirement income.

DeBell singles out a Prudential asset-allocation tool called "GoalMaker," intended to help plan participants construct an appropriate customized portfolio, that's automatically re-balanced on a quarterly basis based on their proximity to retirement and their risk tolerance.

"We're trying to put folks in a hands-off mode that allows them to reap the ups and downs of the market," DeBell says.

He hasn't received a lot of anxious calls from employees during the stock market's recent volatility, a fact he attributes in part to GoalMaker and another Prudential investment service, "IncomeFlex," a 401(k) annuity-based investment option for employees at least 50 years old that guarantees a minimum return, regardless of stock market performance.

But employers should be able to assess the impact of employee-investment education efforts more precisely than a reduction in the number of panicked calls from employees. And vendors themselves are quick to promote their own ability to assist with that task.

Prudential, for example, helps its employer-clients keep tabs on changes in account balances and deferral rates -- factors that can be attributed to employee-educational efforts. Because these indicators tend to vary significantly by employee age, Prudential supplies employers with demographically adjusted data to help them assess educational efforts, says Deanna Garen, a senior vice president at Prudential Retirement.

She points to aggregate performance data on Prudential's income calculator tool indicating that 18 percent of employees who used it raised their 401(k) contribution rates by about $2,800 per individual.

Other "performance" variables can also be measured, depending upon whatever goals employers have for their financial-education efforts. For example, as noted, Precision Information lets employers check employees' test scores for its online education programs.

Approximately 600 Mountain America employees who participated in a recent "retirement savings" education campaign and follow-up assessment increased their grasp of covered retirement topics by over 20 percent, according to Precision Information's Saari. In addition, "they also directly and, through influencing their customers, helped increase the total savings [of credit union members] by over $500 million," he adds.

Such data may be particularly useful in convincing CEOs to invest in employee financial education by focusing on immediate financial results. But Mountain America's Oliver also sees a payoff in employee retention.

"We believe training and educating employees is a retention tool," she says. "It increases their satisfaction and ability to do well in their jobs." Oliver proudly points to Mountain America's 75-percent employee retention rate, "which is very good in this industry."

Although retention rates are attributable to a variety of factors, employers can compare turnover rates before and after investment-education campaigns, notes Saari.

And some employers see the potential benefits of these services as extending well beyond their own bottom lines. M.A. Mortenson is a member of "Financially Fit Minnesota," a group of employers that promotes financial literacy via the workplace. "If people can't afford to retire, it's going to affect us all," says Grabow. Adds Mestek's DeBell: "As a society, we have a responsibility to set employees up for the future." 

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