What do you think of our site upgrade?
Hosting an industry conference? Ask us about including it in this ticker?

5 Ways 401k Plan Sponsors Can Help Employees Nearing Retirement

5 Ways 401k Plan Sponsors Can Help Employees Nearing Retirement
October 08
00:03 2019

The market goes up and down. For long-term investors who continue to contribute to their retirement savings plans, this volatility means very little (except maybe for maybe buying on the dips). On the other hand, for employees nearing retirement, market instability can be a little disconcerting.

We’ve seen plenty of examples from behavioral finance researchers that suggest less than optimal decision-making on the part of 401k plan participants. Fortunately, the evolution of investment options has helped mitigate some of the more obvious problems.

“Most 401k participants use a target date fund that is reducing the stock allocation and increasing the bonds and cash allocation as time goes by,” says Jarrod Winkcompleck, CEO/Senior Advisor at Gap Financial Services in Austin, Texas. “This is happening for most 401k participants.”

Yet, as we saw in the 2008/2009 market debacle, not even target date funds can protect retirement savers. And don’t think they don’t remember that. “It’s a challenge in this country, no doubt,” says Jacob Sensiba, Financial Advisor at CRG Financial Services, Inc. in Brookfield, Wisconsin. “

With every challenge, however, comes an opportunity. Clearly, older employees may be anxious as they see the unknowns of retirement fast approaching. Younger workers may judge their firm by how it addresses the concerns of their veteran peers.

“Employers who take interest in helping their employees plan for retirement tend to decrease employee financial stress and increase overall sense of wellbeing,” says Jon Anderson, Head of Retirement Plan Solutions at Cetera in San Diego, California. “An employee who is better prepared for retirement and less stressed over personal finances.”

For employers interested in not only fulfilling their fiduciary liability to address the best interests of all employees, but also their own interest in uplifting employee morale, there are ways to achieve this. Here are five of them.

#1: Increase Awareness
You can’t do anything about it if you don’t know what the “it” is you need to do something about. It is therefore important for plan sponsors to devote resources that increase employee awareness. “Business owners should proactively offer resources and do their best to increase awareness of the importance of planning and build that into the company culture,” says Anderson.

“Culture” is the key word here. The sense of corporate caring and personal financial responsibility must permeate the very fabric of the firm. “Employers should be talking about this in meetings and written communications with employees,” says Ed Snyder, President, Oaktree Financial Advisors, Carmel, Indiana.

If the company acts as if it’s a virtual financial planning academy from the moment employees are hired, by the time they’re approaching retirement, they’ll naturally know what to do. “Awareness is key,” says Ryan Repko, Financial Planner at Ruedi Wealth Management in Champaign, Illinois. “If near-retirees are simply provided the information as they are a few years away from retirement, they will be in a position to build up their cash and bond reserves.”

#2: Provide the Venue
If you’re going to be an academy, you better make sure you have classrooms. Plans sponsors can and do accomplish this “by providing at-work informational sessions,” says Brandon Renfro, professor and financial planner at Brandon Renfro LLC in Hallsville, Texas.

Still, going back to what was said about embedding the personal finance philosophy deeply within the company culture, training can’t use a “one and done” template. “The biggest failing 401k fiduciaries have with this kind of education is they just don’t do it,” says Bob Forrest, Financial Advisor at Jacobitz Wealth Management Group at RBC Wealth Management in Omaha, Nebraska. “An annual meeting with 401k plan participants is mandatory, but offering additional education throughout the year is a better approach. If the financial advisor of the 401k is willing to do personal planning sessions with the plan participants, that’s ideal.”

It’s not like plan sponsors must work alone. Anderson says, “There are several options employers can pursue to help staff prepare to build out a formal educational program. Most plan sponsors have access to professional advisors and resources so employees have assistance in planning. Benefit season or during merit or bonus season is often a great time to introduce a formal program.”

Furthermore, don’t forget to think outside the box – not only outside the physical classroom but also outside the old ways of presenting financial lessons. Andrew Ziskin with AXA Equitable Life in Woodland Hills, California, suggests doing this “by providing more behavior finance education via Webinars and interactive training.”

Offering multiple access points to education helps busy employees learn at their own pace. This is especially true for those approaching retirement, who probably have many other life priorities to contend with.

“Sponsors could hold retirement planning sessions for near-retirees via webcast or possibly in person for those who are still working for the company,” says Kim Rosenberg, VP, Head of Distribution & Retirement Solutions for Legal & General Retirement America, in Stamford, Connecticut. “If further guidance is desired, sponsors could offer private coaching sessions to help answer more involved questions and ensure participant information is up-to-date.”

#3: Offer Financial/Investment Education
The bread and butter of education is the syllabus. This program is all about financial planning. It doesn’t have to be too complicated. Indeed, it should focus on the most critical decision nodes faced by employees. “Many 401k participants are novice investors,” says Ruth L. Transue, Senior Vice President at Wells Fargo Advisors in Tucson, Arizona, “but the investment concepts are the same even when speaking to more experienced investors. It is imperative to keep the concepts simple, but relevant.”

Part of this education should include a discussion of retirement savings strategies beyond the company 401k plan. “Plan sponsors and 401k fiduciaries should take steps to educate employees about the various types of savings vehicles available to them, in addition to their employer-sponsored retirement plan (such as HSAs, CDs, IRAs and Roth IRAs) to ensure they’re maximizing both the amount that they’re saving as well as their withdrawal strategy,” says Amy Ouellette, director of retirement services at Betterment for Business in New York City. “Plan sponsors can look to providers that offer saving and spend-down planning tools, along with access to advisers, to help people confidently plan for their spending needs in retirement.”

While plan sponsors themselves may not be financial professionals, it is this access to these experts that they can funnel to their employees. “A good financial advisor will help clients design cash flow strategies so that they never have to sell into a declining market,” says Lorraine Ell, CEO at Better Money Decisions in Midland, Michigan. “It should all be part of a holistic financial plan.”

While the strategy to build a conservative bucket prior to retirement, it doesn’t mean you have to keep it totally safe and liquid prior to actual retirement. Employees need to be aware of this. “Explain to them that cash by itself is earning 0% while even the most conservative investments would earn minimal interest without risk,” says Chane Steiner, CEO of Crediful in Scottsdale, Arizona. “Earning something is better than earning nothing. Put your cash to work for you.”

“Not taking enough risk with investments out of fear and keeping too much in cash can be just as detrimental to a successful retirement as losing money in the market,” says Ell. “As people live longer lives, keeping up with inflation, no matter how low, can create financial hardship if investments are keeping pace.”

The best way to show employees what the concepts of finance mean to them is through examples. We explore some of these next in…




#4: Show Real-Life Examples
One thing plan sponsors should realize is that, while they may establish a personal finance academy, this education program should not resemble a traditional educational institution. It should look more like a trade school, with plenty of real-life examples to help the students immediately apply the lesson.

Here’s an example:

“Many retirees retire with a company 401k that has been invested in mutual funds,” says Dr. Ryan Peckham, Assistant Professor at University of Texas of the Permian Basin in Midland, Texas. “Unfortunately, the yield on those mutual funds is usually quite low and is not enough for a retiree to live on. This forces the investor to sell shares to generate income to live and can sometimes be the wrong time to sell. Think about the fall of 2018, for instance. If you had a selective basket of individual stocks that had a history of paying dividends, you could have supplemented or lived off the income. The advantage being that retirees could ride the waves of the market without having to worry about selling out at that wrong time.

The idea of using a practical example isn’t new. It’s been down to show the significance of compound interest to encourage people to save. “Explain the power of compounding over time, once called the 8th wonder of the world, is one of the most important strategies, that it is time, not timing, that will ensure you meet your goal,” says Transue. “Explain the power and leverage of investing a small amount of their paycheck (pre-tax), with a potential match. Emphasize the importance of using dollar cost averaging and disciplined contributions to a diversified, growth-oriented asset allocation. Lastly, don’t underestimate the use of visual aids of specific examples of how that those esoteric concepts would apply to them personally over time.”

Likewise, and this is particularly helpful for those nearing retirement, education can show what happens with spending during their retirement years. “The best way is to provide them simple financial models with different scenarios that show them how they would run down their savings throughout their retirement years, says Alan Gurjic CEO and Founder of All of Us in the San Francisco Bay Area. “They should allow for modeling the starting savings amount, life expectancy, different levels of risk-return combinations. It’s important to realize that in retirement one might not have time to wait for markets to recover after a sell-off, so the amounts held in equities and other risky assets should go down as a proportion of savings.”

Similarly, the potential negative impact of the sequence of return risk can be displayed with real-life example across a broad spectrum of scenarios. “This can be taught by running a financial planning stress test to show an example of sequence risk,” says Brian Fry a financial planner at Safe Landing Financial in Austin, Texas. “One example could be with a 1-year emergency fund and others could be with 6 months and 3 months or less.”

Again, you don’t want to get too hung up in the weeds when it comes to the topics presented. “Plan participants aren’t professional investors,” says Angus Schaal, Managing Director of Phoenix-based Tandem Wealth Advisors in Phoenix, Arizona. “They give up on the market during downturns and lose focus on the long term. Retirement investing should be risk-based and include an investor’s preferences regardless of their retirement date. The focus should be on plan participant experience over education. Technology and artificial intelligence should improve investing for plan participants over the next decade.”

A decade is still far away. Amidst all these employer centric methods, there remains the ultimate education benefit a plan sponsor can bring to the employee.

#5: Hire a Professional
You might consider the many automated features to be an example of mechanizing the retirement plan. As of today, though, robots have their limits. “Many studies show that implementing auto features on their plans increase participation rates, increase average balances, increases retirement readiness,” says Anderson. “Plan sponsors should work with trusted financial advisers to decide which education and participant engagement resources are right for their employee population as well as decide if auto-features are right for them.”

Bringing in the human element also lends itself to designing the general syllabus itself. “A good financial adviser that is handling your 401k plans will be happy to have educational events to help better inform employees about all these different moving parts,” says Tim Alfieri, Junior Partner at Hudson Wealth Management in Traverse City, Michigan.

To take a step further than the mere generic lesson plan, experts can be brought in for those employees who see hands-on training. “For participants who build own allocation, they need the tools and education that can be provided by a seasoned retirement advisor and good recordkeeper,” says Winkcompleck. “Between the two, a plethora of quality tools can be used to educate participants on the need to adjust the investment holdings over time and de-risk the portfolio heading into retirement.”

Wrapping It Up and Tying a Bow Around It
Remember, this financial training should address all the concerns of employees. It’s not just limited to retirement savings, it’s also about managing the shift from working full-time in your chosen career to taking it easy.

There’s no other way to describe it. It’s a lifestyle change. And it can shock many. “Educate employees about how to be prepared for inevitable life transitions,” says Keith Barberis, Director/Wealth Manager at Steward Partners Global Advisory in Bethesda, Maryland. “This not only pertains to retirement but also family issues such as caring for aging parents, funding children’s education etc. ‘They don’t know what they don’t know.’”

Lastly, near-retirees may feel the same trepidation – and procrastination – they did when they were younger. An education program must therefore be compassionate. “People are fearful about not having enough money,” says Jeff W. Poole, Principal Registered Investment Advisor at Wealth Analytics in San Diego, California. “They feel retirement is so far away, that they can get to it later. Many people think that they will never be able to save enough and give up. Like anything, you must get started. These companies can help employees by keeping it simple. It doesn’t have to be a big investment to start – it’s just about getting started. The financial services industry can seem overwhelming and complex, yet with the right mentor it can be a great experience.”

Christopher Carosa is a keynote speaker, journalist, and the author of  401(k) Fiduciary SolutionsHey! What’s My Number? How to Improve the Odds You Will Retire in Comfort, From Cradle to Retirement: The Child IRA, and several other books on innovative retirement solutions, practical business tips, and the history of the wonderful Western New York region. Follow him on TwitterFacebook, and LinkedIn.

Mr. Carosa is available for keynote speaking engagements, especially in venues located in the Northeast, MidAtantic and Midwestern regions of the United States and in the Toronto region of Canada.


About Author

Christopher Carosa, CTFA

Christopher Carosa, CTFA


No Comments Yet!

There are no comments at the moment, do you want to add one?

Write a comment

Only registered users can comment. Login is sponsored by…

Vote in our Poll


The materials at this web site are maintained for the sole purpose of providing general information about fiduciary law, tax accounting and investments and do not under any circumstances constitute legal, accounting or investment advice. You should not act or refrain from acting based on these materials without first obtaining the advice of an appropriate professional. Please carefully read the terms and conditions for using this site. This website contains links to third-party websites. We are not responsible for, and make no representations or endorsements with respect to, third-party websites, or with respect to any information, products or services that may be provided by or through such websites.