Fiduciary Is Fun!
(a.k.a. I heart taxes)
(a.k.a. I heart taxes)
I am knee deep in scheduling and conducting 2nd quarter plan reviews with my 401k clients. And what a 2nd quarter is was! The end of the first quarter we were just hitting the bottom of the market, hope was in the air that COVID-19 would soon be behind us, and Congress was getting busy with stimulus and relief packages, particularly the CARES Act. How did all this play out?
There will certainly be much written and researched about our current times in the years to come, but we are already able to see some interesting outcomes. The Secure Retirement Institute just completed some research that showed American workers who lost their jobs or experienced a drop in income due to COVID-19 were at least twice as likely to take money from their retirement accounts as those who were not impacted. It's a fact that you can’t choose whether or not you will be hit by a pandemic, but you can choose how you react.
However, not everyone who was affected tapped into their retirement savings in the 2nd quarter. In fact, one group in the survey left their retirement accounts virtually untapped. Who were these people? The ones who had emergency savings set aside, particularly those who had set aside a year’s worth of expenses. I would term these people “super savers’ to be able to have an entire year’s worth of expenses set aside, but beyond these folks, there is certainly room for improvement by others.
26% of workers acknowledged that they had less than 1 month’s worth of savings to cover expenses, and 48% report having only enough emergency savings to cover 3 months or less. We need to help employees do better! Tapping retirement savings to “get through today” has devastating effects on long term retirement preparedness.
What would be the easiest way to help employees prepare an Emergency Savings reserve? The same way we help employees save for their retirement – through workplace deduction. Having money deposited into an account that would serve employees in an emergency is the simplest and easiest way to help employees prepare for their next financial challenge.
If you are an employer who would like to learn more about how to help your employees set up and manage Emergency Accounts to better prepare them, please give me a call at your convenience. I would love to show you how easy this can be.
Pete Welsh a/k/a 401kGuy
PWC is one of the largest accounting firms in the country working with some of the largest corporations in the US and even around the world. Given their size and scope, they do a lot of research, and one annual report they have been publishing for several years is around Employee Financial Wellness. They have been producing this report for 8 years.
The report is interesting because it asks employees a number of questions regarding their overall financial wellness and preparedness. How confident are employees regarding their financial decisions? What kind of decisions are employees making? What do employees think about their future? And the ones I find most interesting are those around what their employers can do to help them with their overall financial wellness.
Financial Wellness and programs around them in the workplace have been very popular for a number of years now. It’s very seldom I come across a 401k prospect that doesn’t have some type of “program” in place to address financial wellness for their employees. So you would think that after several years of workplace initiatives employees would be feeling better about their finances, right? Less stressed than ever. Ya, well, it doesn’t seem to be working out that way.
In 2017, the PWC survey indicated that 46% of employees said that financial or money matter challenges were their #1 stressor. After years of trying to help employees, the most recent PWC survey indicates that 59% of them now consider financial or money matter challenges their #1 stressor. Almost 30% more employees are stressed about financial matters now than they were just 3 years ago! At this rate, we should have everyone completely freaked out about financial matters by 2025!
So what the heck is going on here? During this time frame, the economy was strong, inflation was virtually non-existent, and unemployment was at historic lows. We can’t blame any of those factors. What I think is going on is an over reliance on technology as the solution to this issue. I see it all the time as companies roll out new programs to help employees. They are well intentioned, and often well-constructed, but they lack much human involvement.
In my practice, when I am able to meet with employees face-to-face to review their situations and make plans, they are not more stressed after our visit(s) but less stressed. Sure we use technology as an enabler, but the real work happens face to face.
If you are an employer who has implemented a Financial Wellness program but are questioning its effectiveness, I would love to sit down and discuss how we can change that result and begin getting your employees less stressed!
Please give me a call.
Pete Welsh a/k/a 401kGuy
There is much going on in the retirement plan community as we kick off 2020. New Legislation (the SECURE Act), new Regulation (the SEC’s Regulation Best Interest effective this summer), and all kinds of new research.
With respect to research, Russell Investments just published their newest study around anticipated changes that are likely to happen to your 401k plan in the next few years. The good news about most of the anticipated changes is that they will be “good.” “Good” being defined as a change that will better enable employees to prepare for a comfortable retirement. Everyone can get behind those kinds of changes.
One anticipated change that stuck out to me was their “prediction” that as a matter of best practice, employers will begin to conduct retirement readiness reports of their plans to better understand the “funded status” of their participants. The term “funded status” is generally used in defined benefit (“DB”) plans to indicate the extent to which the plan has the money to pay out benefits. This is another way of saying that in the future, employers will start to look at their employees’ savings and ask “are they on track.” I’m oversimplifying a bit, but not much.
The reason this stuck out to me is that I already do this with my clients. And have for quite a while. A prediction of something that is already occurring isn’t much of a prediction. However, as I thought about this, it occurred to me that maybe the majority of advisors do not assess retirement readiness, e.g. “funded status”, for their clients and that what Russell was saying is that “in the future” they might. Well, if this is what they are saying, then there is a problem.
If you are company that sponsors a 401k plan, I have to ask, does your advisor conduct periodic reviews of the plan’s retirement readiness? Are you aware on a quarterly basis how your plan is doing to prepare your employees for retirement? Does your advisor have a framework to assess these questions and provide you with objective reporting?
If the answer to the above is “no”, then I would respectfully suggest you have two options. The first option is to wait about 5 years as the authors of the research believe the probability to be 100% that such reporting will be in place by 2025. The second option would be to give me a call and we can start discussing how you can get this information today. After all, why would you want to wait 5 years when you can get a "future best practice” today?
Pete Welsh a/k/a 401kGuy