CFI Blog

5 Reasons HR Directors Should Include Financial Planning in Benefits Packages

“Truth is confirmed by inspection and delay; falsehood by haste and uncertainty.”

If you’re in human resources, you have two primary jobs:

  1. Find and acquire the best talent possible for what you can spend, and
  2. Retain the best-performing talent for what you can spend.

It was one of the challenges that I faced in my last company. We tried to make working with us fun for the developers. We

BTW, if you’re a developer who is good with big data and search, they’re hiring!

One of the mistakes that I made in determining a benefits package was assuming that if we paid our team members well and gave them good health benefits, they’d be well set up for taking care of themselves financially.

It’s a common mentality. Employers, who want their employees to be happy and taken care of, assume that there’s a fine line between work and private life and money issues are beyond that line. Pay them, but the employer doesn’t really have any business dealing with what happens once the paychecks are issued.

In a sense, that’s the correct approach. As an employer, you don’t want to tell your employees whether or not they can go out to that restaurant on Friday because it may or may not be in the budget.

Yet, employers feel that any financial decision that an employee makes is outside of the realm of what they should be concerned with, and this is the wrong approach.

If employees make poor decisions with their money, then they are going to have financial issues. Those financial issues will cause stress, and sometimes have other unwanted (from the point of view of an employer) repercussions, and will affect the at-work performance of those employees.

If you provide a 401k plan as an employer, you may think that those one hour per year “employee education” sessions fit the bill.

They don’t.

Educating your employees on asset allocation doesn’t do a thing for them if they don’t know how much they should be putting against their debts, how much they should be setting aside for college for their kids, and how much they need in insurance to take care of their families if something happens to them.

It scratches the wrong itch.

Why HR Should Push to Include Financial Planning in Benefits Packages

Financial Planning

Human Resources, along with the CFO, will play the largest role in determining employee benefits packages. They typically think of salary, insurance, retirement plans, and cafeteria benefits when they think about compensation packages.

However, rarely do they think of the one item that will help an employee tie everything in the benefits package together as it applies to that employee’s personal situation: comprehensive financial planning.

As we saw in “Financial Planning Isn’t Just About Investment Management,” comprehensive financial planning does much, much more than simply tell you where you should be investing your money. But, in 9X% of employee education sessions with 401k plans, that’s what you get – how and where should you invest, and that simply doesn’t cut it. Your employees need more.

  • Employees don’t think about investing if they have no idea what their monthly budget looks like. I know. I’ve been in this situation. I spent what I earned each month. Sometimes, I spent more. This is the most basic piece of block and tackling for financial education, and it can help your employees get their finances on track. If you can get your employees saving SAFEMIN, then you’ll have taken them a long way towards reaching their financial goals, but if they don’t know how to allocate the rest of their money, they’ll never save that much.
  • Employees think they have enough life insurance. The non-taxable threshold for group life insurance (with some qualifications) is $50,000. So, a lot of employers provide…wait for it…$50,000 worth of life insurance. Others provide 1x or 2x an employee’s salary. Depending on their situation in life, employees could need upwards of 30x their salary in life insurance. Yet, because of the anchoring bias – a problem with 401k plans as well, by the way, your employees may think that they have enough life insurance.
  • Employees don’t know how much they need to save to retire. The most commonly set aside 401k percentages are 6% and 3% because that’s what they need to save to get the match. However, as we saw above, they should be saving at least SAFEMIN in order to work for 30 years and retire for 30 years. If they’re older employees who do not have enough saved, they will need to set aside even more. Employees are concerned with two questions when it comes to their retirement:
    1. When can I retire?
    2. How much do I need to save in order to retire when I want?

If they can’t answer those two questions, then the rest becomes a nebulous, academic exercise full of general hand-waving an “I’ll get there eventually” exasperated hopes.

  • The spouse needs to be a part of decisions. When the 401k education sessions come around, how often does a spouse sit in on them? Rarely, if ever. Yet, the spouse is responsible for earning money, spending it, saving it, needing insurance, and making financial decisions. If the spouse is not bought into whatever the employee decides to do financially, there will be discord, potentially distrust, and, eventually, an unhappy employee. The spouse needs to be included in these familial decisions, because…
  • If an employee has financial problems, he or she will bring them to work. Whether it’s actually dealing with bill collectors or simply stressing about the problems, employees will not be 100% focused on the job that you’re paying them to do if they have other issues. Even if they cannot solve their problems immediately, if you, the employer, can help put your employee on a path towards financial security, you’ll allay concerns, reduce stress, and aid that employee in giving complete focus on the job at hand.

While you may offer comprehensive financial planning as an executive benefit, it’s not enough. Sure, your executives need to worry about things like non-qualified stock options, net unrealized appreciation, and estate planning, but the rank and file employees are what drive the ability for that executive to be in the position she’s in.

Providing comprehensive financial planning for an employee should not be that expensive. Furthermore, if it is done with the intent of educating instead of capturing assets to manage, providing a plan could be a one-time exercise that will give your employees years of security, making them more productive (and making your COO happier) and making them more loyal to their employer.

It is a very inexpensive investment to make in your employees to gain retention and productivity out of them.

Author Profile

John Davis
John Davis is a nationally recognized expert on credit reporting, credit scoring, and identity theft. He has written four books about his expertise in the field and has been featured extensively in numerous media outlets such as The Wall Street Journal, The Washington Post, CNN, CBS News, CNBC, Fox Business, and many more. With over 20 years of experience helping consumers understand their credit and identity protection rights, John is passionate about empowering people to take control of their finances. He works with financial institutions to develop consumer-friendly policies that promote financial literacy and responsible borrowing habits.

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