This week, I’m been explaining the four key reasons why employers do not prioritize benefits education, even though the majority of employers are very eager to increase employee satisfaction with their benefits package. These four reasons are:
- Short staffed HR departments that are forced to triage and focus on only the most urgent issues as opposed to the longer term strategic planning that education requires.
- Concerns about legal liability associated with crossing the line into providing employees with “advice” about benefits (today’s topic).
- Cynicism that education doesn’t really work because retirement plan providers have struggled to increase retirement plan deferral rates despite offering online and live educational support.
- Uncertainty about the best way to actually help employees make benefits decisions.
The problems in providing financial guidance
The last thing your legal department wants to hear is an employee complaining that they got bad advice or an improper investment recommendation from the local financial advisor who came in to do a retirement planning seminar for you. There have been quite a few ERISA (Employee Retirement Income Security Act) lawsuits on similar scenarios.
Trying to provide guidance in-house can also pose a potential threat. According to the International Society of Certified Employee Benefit Specialists, an estimated 85 percent of HR managers are confronted with employee questions that require expertise on a much larger financial planning context. Since they are not experts, any answers they provide can be construed as advice and used against an organization in an ERISA-related suit.
By outsourcing the education to an unbiased third party who has no hidden agenda to try to sell any products or services to the employees, this eliminates the legal risk and also is viewed as less “salesy” by the audience. This type of unbiased financial education does not provide advice, just guidance to help your employees make better financial decisions.
Your retirement plan provider will commonly offer educational workshops, but due to the inherent fact that the speaker would be an employee of that financial institution, they are always going to have a vested interest in putting a positive spin on any information delivered about the plan and may under-emphasize high fees, sub-par fund performance, and also outside options such as IRAs.
How to limit your company’s risk
The education provider ideally should NOT be an RIA (registered investment adviser) or fiduciary, should not manage assets, should not be owned by a firm that does, should not have a broker/dealer, and the financial planners that will be delivering the benefits guidance should be employed as full time educators and should not even be licensed to sell securities.
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This can only be a guarantee if the firm is not sub-contracting the work to a network of outside planners that might provide the convenience of a local representative but that opens up the possibility for a rogue financial advisor to harvest your employees to meet their sales quota this month.
On the other hand, if advice is truly what is called for, then you can limit the risk by using online advice tools or a fee-only financial planner instead of a commission-based advisor.
Tomorrow, I’ll focus on the cynicism that advice and education doesn’t really work because retirement plan providers have struggled to increase retirement plan deferral rates despite offering online and live educational support.
This was originally published on the Financial Finesse blog for Workplace Financial Planning and Education.