Employer Role in Retirement Planning

Wednesday, April 28, 2010

Should employers have a role in employee retirement planning? If the answer is “yes”, what should that role be?

Employers have invested billions of dollars in funding and administering defined benefit and defined contribution pension and retirement plans based on attracting, retaining, motivating, and rewarding millions of plan participants. Is it not the prudent thing to do to make sure that participants have access to some form of financial and retirement planning? In a prior role, I often met with employees to process their defined benefit and defined contribution payout elections at the time of their retirement. Most elected a lump sum amount, this amount was the largest single amount of money that virtually all had ever handled. The sad commentary was that many were back in my office 2, 3, 4 or 5 years later asking for their old job back. They had spent both their defined benefit and defined contribution within a few years. Sure, their expenditures were valid, a new roof on the house, a new car, a down payment on a house for a child, ... etc.

Had they had access to retirement or financial planners and tools would they have elected an option other than lump sum? It is hard to say, but they would have been armed with knowledge. Certainly, it is not the role of the employer to provide retirement or financial advice, legislation clearly prevents that. However many employers provide access to retirement or financial planning tools via their defined contribution plan administrators and recordkeepers. At several prior employers, employees were given onsite access to financial planners during employee appreciation days and health fairs. Most defined contribution plan administrators and recordkeepers are willing to come onsite and meet with groups of employees to provide basic retirement and financial information. Some defined contribution plan administrators and recordkeepers provide personalized retirement and financial advice on a fee for service basis. Of course, employees are free to seek out independent advisors on their own. Unfortunately, many employees fail to recognize that retirement and financial planning, advice, and information they actually need.

A quick review of several websites for defined contribution plan administrators, recordkeepers, banks, web portals yields a wide range of replacement income planning tools, savings rate estimators, and “what if” tools. The problem is that such tools do not exist; the problem is that most employees lack awareness that at age 20, 30 or 40 they should be thinking about retirement.

As with health and life style issues with health care, the issue with retirement and financial planning is raising the level of employee awareness to seek out help. What health risk assessments have done for employee health awareness, retirement and financial planning can do for the future retiree. Thus, the role for employers is the raise that awareness level and allow the find their own path.