Squared Away Blog

June 26, 2012

Employers Try New 401(k) Strategy

Employees apathetic about their 401(k)s are not saving enough. Some employers are bringing in reinforcements to push, cajole, or entice them.

Employers and employees share the blame for the low rate of retirement savings nationwide, consultants say, but the common practice of employers handing their new workers a 401(k) sign-up form and investment materials from the mutual fund manager clearly isn’t working. A few employers are trying a different tack.

One such initiative, by the Foundation for Financial Wellness in Colorado, trains and certifies CPAs, estate planning attorneys and financial advisers to educate its clients’ employees. NASA was the foundation’s first client, and they now include hospitals, city governments, oil companies, unions and churches, said Brent Hines, founder.

The foundation’s educators “are unbiased and don’t have a dog in the fight,” Hines said. “We’re not the 401(k) provider, and we don’t have the bias of wanting to put more money into your 401(k) or invest in a product.”

Separately, a program to educate credit union employees is expanding from four pilot states to an additional six and Washington, DC. And the American Nurses Association recently teamed up with a non-profit to train 10 nurses in five initial states to run workshops; to date, more than 700 nurses have gone through the financial workshops.

More than half of Americans are not ready for retirement, according to the Center for Retirement Research, which sponsors this blog. And employees nearing retirement had accumulated just $78,000 in their 401(k)s in 2007, the latest federal data show.

Mutual-fund buzz words and risk-return tradeoffs can intimidate employees, said Dennis Ackley, a long-time retirement consultant with Ackley Associates in Missouri. They’re unable to fend for themselves – so they don’t.

“I don’t think employers are trying to do any hoodwinking,” he said. But, “We send people in who know way too much. We have them talk to people who are just getting started, and they don’t connect.”

Another issue is trust. The non-profit Women’s Institute for a Secure Retirement (WISER) WISER, which is working with nurses, said nurses tend to be wary of outsiders, trying to sell them something. Lara Hinz, director of WISER’s program, said that when nurses learn from fellow nurses, they “can relate to them.”

The new programs aren’t focused on investments and instead teach basic budgets, insurance, saving, credit cards, and other financial matters. The assumption is employees need the big picture to understand why saving is critical to their retirement security.

The Investor Protection Institute’s program for credit unions and other employers may be one of the largest such initiatives. It was funded by a 1993 settlement for financial wrongdoing between investment firms and state attorneys general around the country. Don Blandin, the institute’s president, said about 8,500 employees at 206 U.S. employers – mostly credit unions – have completed the courses; another 6,000 are enrolled in the spring round.

There is scant academic evidence that financial education is effective, and some credit union employees go the easy route, fellow employees said: they repeatedly retake the multiple-choice test at the end of each module until they pass.

But employees who want to get something out of it did. Some 65 employees at the Local Government Federal Credit Union (LGFCU) in Raleigh, North Carolina, completed the series of 10 online teaching modules, about saving, investing, financial planning, retirement and other money matters, said Deborah Isenhour, senior vice president.

Sean Schaefbauer, an LGFCU loan analyst who completed the course, and his wife are expecting. The module on saving for college was “mind-blowing” but useful, he said. “I’m in school and paying for myself right now, and I can’t imagine 18 or 20 years from now how much it’s going to be.”

Giving employees time during their workday to complete the online courses was key to high participation at LGFCU, said Isenhour. The credit union also recruited “ambassadors” to encourage coworkers to complete the courses.

Finally, LGFCU’s chief executive fully backed the effort, making clear he wanted “100 percent participation,” she said. “And he got it.”

That maybe prove more effective than throwing the 401(k) materials on the kitchen table to deal with another day.