It once represented the most feared words a worker could hear. “Will all employees please report to the cafeteria for the quarterly 401(k) enrollment meeting.”
For the next hour or so, a financial professional would dryly read through a template-driven text describing the joys of tax-deferred saving, the importance of meeting the company match and the dangers of investing poorly.
Fortunately, the world has changed. A new kind of 401(k) education program has emerged, one that emphasizes everyday concerns. “Plan sponsors increasingly are looking for help in providing financial wellness education and resources,” says Ken Verzella, Head of Deployment, MassMutual Workplace Solutions, in Springfield, Massachusetts. “They are looking for retirement plan providers and financial intermediaries to help them offer tools to help employees get a handle on their financial issues and solve them, both in the short- and long-term.”
Is your employer keeping pace? Here are five topics now being addressed in these 401(k) meetings. Are you benefiting from discussing how these items impact your financial life?
#1: Financial Planning Outside of Retirement
“Financial wellness” refers to taking a holistic approach towards your personal finances. It’s not just about retirement. It’s about managing your budget, controlling your debt and paying for life-changing purchases like buying a house or a child’s education.
None of these financial matters pertain to retirement. They may, however, impact your ability to save for retirement.
When taking a holistic approach, you begin to see how everything interacts. For example, the size of your mortgage or your car payment will impact how much you’re able to defer into your 401(k) account.
Modern employee meetings (or, more likely, online education programs), permit workers to get a better idea on answers to financial questions they face in the normal course of living. In the best case, tools are provided to simulate actual activities.
Does your employer provide this service? If not, ask for it.
#2: The Dangers of Using Retirement Savings for Something Other than Retirement
There’s some disagreement regarding the value – or damage – of offering hardship withdrawals or loans as part of a 401(k) plan. On one hand, it’s your money and a medical emergency can certainly justify a hardship withdrawal. On the other hand, this “leakage” slows the growth of your retirement account and, therefore, may harm you.
Employee education meetings tend to emphasize savings as the objective that leads to the plan’s benefit. These same meetings often refer to hardship withdrawals/loans as a feature.
Does your employee education cover the consequences of these features? If not, ask for it.
#3: It’s More Than Just Saving for Retirement
While the main emphasis of a retirement savings plan is (surprise!) saving for retirement, most financial planners will tell you there’s another important bucket to save for. Using this strategy can both help you avoid the dangers of premature withdrawals (see #2), but can also help you with your retirement.
It’s called an “emergency fund” and it’s used precisely for what the name implies. The rule of thumb is generally to save between six and eighteen months of expenses in a safe, liquid account. This number derives from your ability to pay those expenses should you unexpectedly lose your job.
But the cash can be used for any emergency. That’s why it’s just as important to save in your emergency fund as it is to save in your retirement fund.
Does your educational program explain this? If not, ask for it.
#4: What Happens When You Leave Your Company?
This is another controversial topic.
Some feel employees are better off keeping their money in the plan because the company can continue to safeguard those assets. In addition, the ex-employees might benefit from lower fees as a result of economies-of-scale pricing. The opposing view maintains employees can obtain more customized service by rolling their assets over. At the same time, taking the money out of the plan also eliminates exposure to plan-related fees.
There’s a further trick that can surface when you leave the company. Depending on how your plan is designed, your money might be unceremoniously dumped in your lap when you depart. This leaves you without a retirement account and potentially a hefty tax bill.
Does your employee education provider show you how to avoid this? If not, ask for it.
#5: Identity Theft Protection
Sometimes you are the best person to protect your best interests. Such is the case with identity theft. You are in the ideal position to prevent someone from stealing your identity.
There may be times, however, when, despite your sincere efforts, a breach occurs. That’s when you need a little help from your employer. Ideally, your 401(k) plan contains cybersecurity shields that provide a failsafe in case your own protection breaks down.
Does your company’s 401(k) education program tell you how to maximize your protection against identity theft? If not, ask for it.
Your employer’s retirement plan meetings need no longer be rife with repetitive boredom. If done right, they can provide increased comfort not just with your retirement prospects, but with your everyday financial life, too.
If not, ask for it.