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August Top Advisor By Participant Outcomes (TAPO)

It’s numbers like these that get our attention

401k, top advisors, retirement, financial wellnessMike makes sure there are measurable benchmarks.

Measurable ROIs to Motivate 401k Participants

The American Retirement Association finds that 80 percent of 401k participants earn less than $100K. The Pension Resource Council at the Wharton School of the University of Pennsylvania adds that 76 percent of employees that earn less than $60,000 take a 401k loan.

It’s numbers like these that get our attention.

Our nationally recognized team of plan sponsor consultants are big proponents of behavioral finance, so much so that we published a paper on the topic (“Overcoming Obstacles to Retirement Plan Success: Inertia, Myopia and Loss Aversion,” Journal of Pension Benefits, Winter 2016).

This interest in behavioral finance led us to develop a workforce-level analytical tool. It involves a short quiz that feeds a personalized report with the participant’s goals and, importantly, their vulnerabilities.

It provides a measure of retirement readiness but also looks at sources of financial stress, such as whether they have a will, whether they’ve engaged in college planning and similar areas, and we then seek to reduce that stress. We find it’s a great engagement tool, with a high percentage of new employees taking some sort of action within the first month.

From there we focus on financial wellness to improve overall participant outcomes. Years ago, we performed an informal survey of large financial services companies and their financial wellness initiatives. We found that roughly $100 million was spent on financial education over 25 years, with only 7 percent of participants realizing any sort of appreciable benefit.

By all measures, the efforts were a failure, but they didn’t have the benefit of analytics and data mining that we do today. A gap analysis shows that moving the needle by only one or two percentage points can be the difference between retirement success and failure, something for which financial wellness can account. Financial wellness is simply a program to combat financial stress.

When we approached human resources professionals about retirement readiness, they were typically (and unsurprisingly) too busy to speak. When we lead with “I can measure your employees’ chance of financial retirement success, and tie it to how it affects healthcare and other areas that materially impact the bottom line (i.e. financial wellness) that’s measurable; that’s a return on investment that gets their attention.

Some of the benchmarking metrics to demonstrate improvements in both participant retirement readiness and financial wellness include participation rates, deferral rates, and diversification, as well as the existence of emergency funds, reduction in consumer debt, college savings and various risk management categories.

Reasonableness of fees is also demonstrated, annually, using several benchmarking tools, including our proprietary record keeper RFP with a legal review by the Wagner Law Firm.

Ultimately, to ensure successful participant outcomes, you must create an atmosphere to motivate individuals, and we do that with financial wellness.

Michael Kane is managing director of Atlanta-based Plan Sponsor Consultants.

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