Financial Counseling Critical Component of Retirement Planning

A new study conducted by Ernst & Young LLP and ExecuNet revealed that personalized financial counseling is critical to help employees effectively manage retirement planning. The survey of human resource and employee benefits professionals found that financial education alone is not enough to influence a change in employee behavior.

Employers that added more personalized assistance and counseling programs to their financial education programs, such as telephone and in-person counseling, reported a significant increase in the involvement of participants in their retirement planning. Results from employers with such counseling programs showed:

  • Up to a 16% increase in participation rates in excess of 5%
  • Up to a 17% increase in contribution rates as a percentage of pay in excess of 5%
  • Up to an 11% increase in the change in allocations in excess of 5%
  • Up to a 15% decrease in loan activity in excess of 5%
  • Up to a 16% increase in rollover activity in excess of 5%

“A small percentage increase in any aspect of investment behavior, such as a change in contribution as a percentage of pay, can yield positive results for plan participants and can leave them more financially secure in their retirement," said Bill Arnone of Ernst & Young's Human Capital practice. "By providing one-to-one counseling, employees understand the importance of saving for retirement and can also determine the course of action that best meets their needs."

With more than 83 percent of survey respondents providing some level of financial education for employees, it is clear that the question is no longer whether employee education programs should be offered, but rather how they should be offered in order to achieve the best return for both employers and employees.

Additional Key Findings

Historically, plan sponsors have cited the risk of potential fiduciary liability as the primary reason for establishing employee education programs.

New considerations include:

  • Nearly 90% of respondents agreed or strongly agreed that their companies provide financial education to improve employee satisfaction.
  • Approximately 84% of respondents agreed or strongly agreed that their companies provide financial education to employees because their 401(k) plans will be the primary source of retirement income and employees need more help managing them.
  • More than 80% of respondents agreed or strongly agreed that their companies provide financial education to help establish them as employers of choice, thereby enhancing employee attraction and retention.

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