Employee Retirement Readiness: Good for Employers
Financial wellness can incorporate many things — handling debt, paying off student loans, saving for family priorities. A recent primer on the subject argues that it also encompasses retirement readiness, but with a twist: employees’ retirement readiness also benefits employers.
“Retirement readiness is an important aspect of financial wellness to consider; in fact, it may be the most important aspect affecting today’s workforce,” says the Defined Contribution Institutional Investment Association’s Financial Wellness Task Force in “A Financial Wellness Primer: Why Financial Wellness?
Financial wellness “encompasses a holistic understanding of one’s financial picture and financial health” that “enables employees to successfully make use of the programs and benefits offered by their employer,” says the primer. “Financial wellness may be seen as an umbrella term that encompasses a variety of financial concepts, one that helps employees become financially fit and able to act intelligently with respect to their own financial matters,” it continues.
From an employee’s perspective, the DCIIA defines financial wellness as the ability to meet ongoing financial responsibilities while following a plan to create a secure financial future; from an employer’s, it says that financial wellness involves more than creating a plan, and includes helping employees prepare for retirement and retirees continue to finance it. “Retirement readiness, like employees’ financial wellness in general, is critical in order for an employer to properly manage its human resources and utilize its retirement plan not only to attract and retain talented employees, but also to manage the cost of its workforce,” says the task force.
So what constitutes retirement readiness? “True retirement readiness will vary for every individual, based on his or her unique goals and needs in retirement, wealth outside of the retirement plan, ability and desire to generate income in retirement years, and many other factors that will affect his or her unique personal situation, such as longevity,” says the primer. “The focus is not solely on ‘retirement,’ but also on how the different components of the individual’s financial picture feed into and enable one another. If the foundation of financial health is not there, retirement readiness is not as attainable,” it further posits.
When those components work together, says the primer, not only employees, but also employers, benefit. Why? “Employee readiness to leave the workforce at retirement is critical for employers that see their retirement benefit plans as human resource management tools,” it explains, adding that the employer’s defined contribution plan should enable it to facilitate mobility within its workforce, which can help the employer meet its growth and profitability goals.
But that mobility is not simply something that benefits an employer, the task force posits. “The most gratifying aspect of meeting retirement readiness for an organization, however, is that it is a clear and consistent goal for employees as well,” it says, adding, that employees want financial wellness and the ability to retire. “Whether motivated by altruism and paternalism, ROI, lower costs or a dynamic workforce environment, the employer’s goals and employee’s desires are well aligned when it comes to retirement readiness,” the task force says.
The task force suggests that employers and plan providers “consider how financial wellness programs can complement their goals,” and argues that employers have “a unique opportunity” to educate and influence employees and their families. “Ideally,” it argues, financial wellness “also involves showing active and retired employees how to make decisions about their financial situation and how to manage their own financial wellness plan over time. It includes perspective on balancing the opportunity to consume and enjoy life today with maintaining a comfortable lifestyle in the future, all while minimizing overall financial stress.”