23 Feb. 2015 | Comments (0) Share Follow @Conferenceboard
|This blog serves as a follow-up to my prior post on Helping Employees Make Better 401(k) and Other Retirement Decisions: Models of Financial Advice for Retirement Plans, and is focused on issues to consider in setting strategy and choosing service providers for decision support and advice.|
Decision support can take a number of different forms. It can be integrated into plan communications and administration, or it can be a separate additional service.
- Employee education including customized education
- Information on benefit statements, particularly if tailored to encourage behavior
- Information in customized e-mails, particularly if tailored to encourage behavior
- Services to answer questions for employees based on their circumstances, including analysis of individual situations
- Advice delivered by an automated system after employee input
- Advice delivered by an individual in response to a question
- Analysis and development of a financial plan for the employee
- Providing financial support for advice where the employee can choose their own advisor, perhaps subject to defined condition
An important distinction in the scope of services provided under different options is whether there is a specific recommendation or simply a discussion of alternatives and their implications. Some employers are very comfortable providing an analysis of alternatives, but not a recommendation.
The company’s strategy and plan design will define the type and scope of advice sought. Some of the questions for employers to think about as they decide whether they want to offer decision support to their employees include the following:
- How important is employee financial wellness to us?
- Is it our goal to help employees make better decisions about their benefits?
- Is it our goal to support household financial planning for our employees?
- Will retirees and/or surviving spouses also be included in the program?
- Will the company offer access to a service without paying for it, or will we also pay for it?
- Do we want to offer education only, provide information and educate, or do we want to offer advice including making specific recommendations?
- Do we want to focus on our own benefit plans only or on the total picture for the employee? What about other members of the household?
- How many resources are we willing to devote to decision support?
- Do we wish to consider a program where the employee shares the cost?
- Will we choose the advisor or group of advisors, or will we support allowing the employee to choose an advisor?
Development of a strategy also requires an assessment of the needs of the people who get the service. Some of the issues to think about with regard to your employees/plan participants:
- What gaps in employee knowledge are we aware of?
- Are employees saving enough for their retirement?
- Do employees have adequate information to make appropriate financial decisions?
- For what type of retirement decisions do they need additional education and/or advice?
- If financial literacy improves among plan participants, will they need to have an advice component?
What types of support would we like to offer? These are some examples of what a company might include:
- General education about our benefits
- General education about financial topics
- Customized information and education about our benefits and what they do for employees
- Retirement planning
- Assistance at the time of specific events, such as retirement, widowhood, buyout offers, etc.
- Customized financial education for the household
- General responses to financial questions
- Evaluation of alternatives in response to financial questions
- Investment advice for our plan assets only
- Investment information and advice for an employee’s total portfolio
- Help with decisions such as Social Security claiming
- Help with debt management
- Support for personal tax issues
Thinking about these issues will help an organization define the type of support it wishes to provide. It will also need to think about whether the same support will be offered to all employees or to certain groups, such as those nearing retirement, or executives.
In evaluating alternative services, some of the questions to be asked include:
- What is offered by the service providers who administer our benefit plans?
- What is the cost of the service?
- What services do we wish to purchase?
- Who will they be made available to?
- What is the business model of the service provider? Do they also offer products and/or investment management? Are there potential conflicts of interest?
- Does the service provider assume fiduciary responsibility?
- What limits do we wish to impose on the service provider?
- What technology components are included in the service?
- What is the quality control over the service?
- Can we identify what advice is given in specific situations and are we comfortable with it?
- If two employees ask the same question, will they get the same response? If not, why not?
- What professional qualifications and licenses do the people providing the service hold?
I would recommend as part of the selection process designing several case studies and asking the providers what response they would give in each situation. Comfort with the responses should be a component of the evaluation.
This situation is generally more complex because there is no “generally accepted financial advice” that will provide a guideline to the “right” answers. There are many situations where opinions between advisors will vary. For example, if a retiree wants to know what percentage of assets to annuitize and when, there will be widely different answers among experts.
If a retiree wants to know how fast to pay off a mortgage at retirement, there also may be very different answers. For many questions, there is no accepted “right” and “wrong” answer. The plan sponsor will want legal help in the structuring of the program. Some plan sponsors will engage consultants to help them evaluate alternative providers.
These are a few of the issues discussed in a Society of Actuaries’ study, Models of Financial Advice for Retirement Plans: Considerations for Plan Sponsors, released in December 2014. That study provides an overview of the issues plan sponsors should consider as they decide whether or not to provide employees with advice and other decision-making support, and as they decide what route to follow.
The Society of Actuaries will also be issuing a guide for employers considering advice offerings later this year.
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