Step One to Get Participants Focused on Retirement Planning

October 15, 2014 ( – Three types of participant—underfunded, funded and unsure—can all benefit from a simple retirement readiness projection, a key part of holistic financial wellness, according to Financial Finesse. 

A number of variables make it difficult to gauge retirement readiness: future market returns, for one, and inability to predict economic cycles that create or destroy wealth. But one thing that is within people’s control—both retirement plan sponsors and plan participants—is what employees do to prepare themselves, said Liz Davidson, founder and CEO of Financial Finesse, during a webcast hosted by the firm.

Increasingly, Davidson says, employees are focusing on retirement planning. But plan sponsors can see that the focus is not across the board by the varying levels of confidence and concern their work forces exhibit about their ability to retire when they want to. About two-thirds are concerned, and one-third of employees express a lot of concern about retirement preparedness.

One danger of the lack of preparedness is the impact of delayed retirement on a company’s bottom line when employees are unable to retire, Linda Robertson, a certified financial planner with Financial Finesse, pointed out during the webcast. “These are the ones who, if they had the option to, would retire,” Robertson explained. Costs to employers can be as high as $10,000 per employee per year, from factors including higher health care costs for these workers and higher salaries.

Amid some positive signs—the eagerness employees show for this information and the fact that, when offered, they seem to be using financial wellness services on a regular basis—are some worrisome ones. Most plan participants are not really looking at their own situation, Davidson says, and the biggest problem is the lack of self-assessment.  

“A majority of employees overall have not run a retirement plan projection,” she said. “How can you expect them to be prepared if they don’t run a readiness projection? It’s unrealistic to expect them to be able to get to their destination without this.” One statistic Davidson finds especially startling is that about half of those participants who have not run a retirement plan projection are pre-retirees.

To those in the industry, it is frustrating. Robertson noted that the retirement projection tools are out there for people to use, but getting people to actually use them is another matter. “When you look at your own [participant] demographic, is it realistic to expect that people will go online and look at them on their own?” she asked. Perhaps part of the answer is to provide the information from a readiness projection as an annual checkup.

Davidson agreed that adoption of readiness tools should be higher. “We’ve found that if you build it, they will not come,” she said. “If you mail it, they will not open it.” She estimated the number of plan participants who actually open mail with information about retirement readiness projections as “close to 0%, probably."

Most effective is a combination of education and counseling, Davidson said, and financial advice should be a piece of the offering. She recommends asking participants to bring their statements to one-on-one advice sessions. Even then, she said, it is surprising how many people come to a group education session or a one-on-one, with the letter still sealed.

Plan sponsors should abandon what Davidson calls the “lunch and learn mentality.” It is unrealistic to expect people to change everything after attending a single workshop. “The reality is, you can’t work out once and be physically healthy,” she said. “You can’t do one retirement readiness projection and expect to be financially healthy—it’s a lifestyle change and a choice that needs a multi-step program.”

Plan sponsors need to assess their populations. Financial Finesse has identified a segment of employees it calls “underfunded”: They are not on track to retire securely when they want to. For those participants considered underfunded, Robertson said, holistic financial education is a crucial need. “They’re struggling financially overall,” she said, “not just with retirement readiness.” Compared with participants who are on track, underfunded participants lack emergency funds, are headed toward retirement with debt, and have difficulty handling monthly and daily cash flows.

The first step in getting participants to engage in the process is a retirement readiness assessment. “For the ‘unsure,’ that is a wakeup call,” Davidson said. For participants whose own financial futures remain a question mark, it shows them the gaps and directs them to create an action plan, such as a personalized learning path. Next up is education, which really helps them address financial goal-setting.

“Most people need one-on-one financial coaching on an ongoing basis,” Davidson said. After the first meeting, they can migrate to regular phone-based coaching. “When that’s in place, that is when we see the greatest behavioral changes,” she said.

Incentives are a best practice in getting people to participate in assessments and readiness projections, Davidson said. “We found that cash incentives work the best,” she told PLANSPONSOR. “Connect health and wealth, for example. The plan sponsor could make a contribution of $50 or $100 into a health spending account; or provide a cash amount through payroll for immediate use.” It really comes down to actual cash for this incentive, Davidson said, and the unsure are probably more swayed by money than by any other piece.

Another best practice is to couple the readiness projection with getting education, which is its own incentive. Participants must do step one (the assessment) to get to step two (education), Davidson explained.

Participant perceptions are sometimes at odds with their own reality. Robertson recalled a participant who expressed regret about not planning his retirement better. He was concerned about not having enough money to last his lifetime. “He had done a good job saving,” she said, and at about half a million was anxious because he had seen somewhere that $1 million was needed. But his set of circumstances meant that he would be unlikely to run out of money for another 40 years—as a man in his mid-60s, he needed reassurance that he did, in fact, have enough.