financial planning as an employee benefit - iscebs kid on the block: financial planning as an...

I N T E R N AT I O N A L S O C I E T Y O F C E RT I F I E D E M P L O Y E E B E N E F I T S P E C I A L I S T S

C E N S U S O F C E RT I F I E D E M P LOY E E B E N E F I T S P E C I A L I STS

Financial Planningas an Employee Benefit

Contents1 Introduction

1 Background information

2 Part I–Personal Perspective

5 Part II–Trends and Opinions

9 Part III–Employer Practices

18 Part IV–Demographics

19 For more information

Summary Highlights�Fifty-four percent (54%) of CENSUS respon-

dents personally rely on some type of financialplanning service; 28% of these indicate theservice is offered through the employer.

The top areas of interest in financial planningfor CENSUS respondents are retirementincome objectives and planning and wills,trusts and estate planning.

CENSUS respondents with formal educationor training or self-taught skills in financialplanning are the most confident in their abilityto manage their self-directed investments.Conversely, respondents with no backgroundin financial planning are the least confidentin their overall ability to manage their self-directed investments and, additionally, moreof those respondents became less confident intheir investment management ability over thepast two years than the group as a whole.

An overwhelming majority of CENSUSrespondents (96%) agree “workers want andneed financial planning education and advice.”

According to CENSUS respondents, the sub-ject area in which workers are most lackingfinancial awareness is allocations.

The biggest obstacle to successful financialmanagement for workers, according toCENSUS respondents, is lack of knowledge.

The most important motivator for an employerto offer a financial planning advice service isto enhance awareness of and appreciationfor benefits the employer already provides.

Ninety-four percent (94%) of CENSUSrespondents foresee an increase in financialplanning benefits; 17% say financial planningbenefits are likely to become mainstream.

Thirty-seven percent (37%) of respondentssee financial planning benefits moving beyondinvestment and retirement planning towardcomprehensive personal financial management.

Thirty percent (30%) of employer respondentscurrently offer an interactive online adviceservice; 92% of those are likely to continue tooffer it.

New Kid on the Block: Financial Planning as an Employee Benefit 1

Introduction

There’s no time like the present. A national tragedy, personal and collective mourning,war, a weakened economy, an uncertain future . . . the circumstances of 2001 haveawakened Americans, if not the world, to the fact that life exists only in the present

and it is there that we live, choose and act. The notion of putting things off, whateverthey are and for whatever reason, has become unsettling as opposed to convenient.Financial planning, wherever it fits in the bigger scheme of things, is no exception.

Already in its stride prior to September 11th, financial planning as an employee bene-fit is moving rapidly forward. The need for financial planning, the interest in financialplanning, and the opportunities to institute and advance it are ripe. Consider theincreased annual limits on combined employer and employee contributions to 401(k),nonprofit 403(b) and Section 457 plans, the repeal of the 25% of compensation limit,and the increased annual limits and catch-up provisions for IRAs created by theEconomic Growth and Tax Relief Reconciliation Act. Consider also the current progresson HR 2269, the Retirement Security Advice Act, which would allow defined contribu-tion plan participants to receive advice from investment management firms, given certainrestrictions, by providing limited exemption from ERISA’s prohibited transaction rules.Additionally, in September of 2000, the Department of Labor clarified its position on thefiduciary liability of employers responding to the investment education and advice needsof their employees. Add to the mix a growing willingness of workers to become moreproactive in securing their financial futures through knowledge and action.

The results of this premier CENSUS on financial planning unquestionably point to anew, exciting and evolving dimension of employee benefits. Read on!

Melody A. Carlsen, CEBSDirector of ResearchInternational Foundation of Employee Benefit Plans

Background InformationIn June of 2001, the International Society of Certified Employee Benefit

Specialists surveyed a sample of its 3,850 U.S. members. A detailed questionnairewas sent to 917 individuals employed in a benefits capacity by corporate, public ornonprofit employers. Twenty-six percent (26%) or 234 respondents returned a com-pleted questionnaire. The questionnaire was divided into four parts. Part I asked forpersonal information relating to financial planning background, ability and areas ofinterest. Part II asked for opinions on the need for and direction of financial plan-ning benefits in the workplace. Part III examined specific employer practices relatingto financial planning, including the use of online investment advice services. Part IVasked for employer size and geographic location.

� Forty-three percent (43%) of all CENSUSrespondents indicate their background infinancial planning is the result of informalclasses or seminars.

Smaller, but almost equal percentages ofrespondents are either self-taught (18%),formally educated or trained in financialplanning (16%) or have no particular back-ground (15%).

Which of the following best describes the background you havein financial planning?

2 New Kid on the Block: Financial Planning as an Employee Benefit

� Fifty-four percent (54%) of all CENSUSrespondents personally rely on some typeof financial planning service in makingfinancial decisions, while 46% do not.

Of those respondents who rely on finan-cial planning services in making financialdecisions, 28% indicate those services areprovided through the employer.

Of those respondents who do not rely onfinancial planning services, 89% indicatethey would know where to go for thoseservices if they were needed.

Do you personally rely on any type of financial planning servicesto assist you with your financial planning decisions?

Formal educationor training

16%

(n=234)

Informal classesor seminars

43%

Discussionswith colleagues,friends or family

8%

Self-taught18%

No particularbackground

15%

(n=224)

Yes54%

No46%

PART I


�The top three areas in which CENSUS respondents indicate they would be most likely to seek financialinformation are retirement income objectives and planning (74%), wills, trusts and estate planning(74%), and investment vehicles and allocations (58%).

If financial planning benefits were made available to you, in whichareas would you be most likely to seek financial information?

0 10 20 30 40 50 60 70 80Percentage of respondents

7474

58

5025

22

1710

9

8

Retirement income objectives and planning

Wills, trusts and estate planning

Investment vehicles and allocations

Income tax planning

Long-term care insurance

Power of attorney

Budgeting and cash flow

Debt management

Individual life insurance

Individual health insurance

(n=233)

� Eighty-six percent (86%) of CENSUSrespondents indicate they are either some-what confident or confident in their abilityto successfully manage the investments intheir own self-directed 401(k) or similaraccounts.

More respondents with either formaltraining in financial planning or self-taught skills were confident in theirability to manage their self-directedaccounts than respondents as a whole(72% and 46%, respectively, versus 34%);very few respondents with no backgroundin financial planning were confident intheir ability to manage their self-directedaccounts.

How do you assess your own ability to successfully manageyour investments in your self-directed 401(k) or similar accounts?

(n=227)

Confident in my ability

34%

Somewhat confidentin my ability

52%

Somewhatuncertain

of my ability14%

Uncertainof my ability

0%

� Over three-quarters (77%) of respondentsindicate despite fluctuations in the invest-ment market over the past two years, theirperception of their ability to successfullymanage their self-directed investments hasnot changed.

A handful of respondents had becomemore confident in their ability to suc-cessfully manage their self-directedinvestments over the last two years, all ofwhom had formal education or training,informal classes or seminars, or wereself-taught.

A greater percentage of respondents withno background in financial planning hadbecome less confident in their abilityto manage their investments over the pasttwo years than respondents as a whole.

Have fluctuations in the investment market over the last two yearschanged your perception of your ability to successfully manage your401(k) or similar investments?


� Approximately three-quarters (76%)of CENSUS respondents describe theirfinancial savvy as being either better thanaverage or much better than average, ascompared to workers in general.

Of those respondents who describedtheir financial savvy as much betterthan average, 93% were either formallyeducated or trained in financial planning,participated in informal classes orseminars or were self-taught.

None of the respondents described theirfinancial savvy as being less than or muchless than that of workers in general.

Comparing yourself to workers in general, how wouldyou describe your financial savvy?

(n=234)

More confidentin ability

5%

Less confidentin ability

18%

Perceptionof ability hasnot changed

77%

(n=234)

Much betterthan average

24%

Average24%

Better thanaverage

52%

Much less thanaverage

0%

Less thanaverage

0%


� Ninety-six percent (96%) of CENSUSrespondents either agree or strongly agreewith the statement “workers want and needfinancial planning education and advice.”

To what extent do you agree or disagree with the statement“workers want and need financial planning education and advice”?

� In their professional roles, the vast majorityof CENSUS respondents (85%) are facedwith employee benefit questions that needto be answered in a much larger financialcontext.

As a benefits professional, how often are you faced with employeebenefit questions that need to be answered in a much larger financialcontext?

PARTII

Strongly agree40%

Agree56%

Disagree3%

No opinion1%

(n=234)

(n=233)

Frequently33%

Occasionally52%

Infrequently11%

Rarely or never4%

� The level of comfort of CENSUS respon-dents faced with employee benefit questionsthat need to be answered in a much largerfinancial context varies considerably,with the majority falling in the somewhatcomfortable/somewhat uncomfortablerange.

How comfortable are you with addressing employee benefit questionsthat need to be answered in a much larger financial context?


�Based on the typical questions CENSUS respondents are asked about the employer’s self-directed401(k) or similar plans, the area in which workers are most lacking financial awareness is allocations,followed by rollovers and distributions.

Based on typical questions you are asked about the employer’sself-directed 401(k) or similar plans, in which areas are workersmost lacking financial awareness?

(n=230)

Verycomfortable

11%

Somewhatcomfortable

50%

Somewhatuncomfortable

31%

Veryuncomfortable

8%

0 10 20 30 40 50 60 70 80

Percentage of respondents

8144

2523

21

4

90 100

Allocations

Rollovers and distributions

Contributions

Loans

Participation

Don’t know

(n=234)


� According to CENSUS respondents, thetwo biggest obstacles workers face in suc-cessfully managing their financial futuresare lack of knowledge and denial of theneed to plan.

As a benefits professional, what do you perceive as the biggestobstacle workers face in successfully managing their financial futures?

� According to CENSUS respondents, the toptwo motivators for an employer to offer afinancial planning advice service throughthe workplace are to enhance awareness ofand appreciation for benefits the employeralready provides and to decrease theemployer’s fiduciary risk by providing toolsfor workers to achieve financial goals.

Other motivators for an employer to offera financial planning advice service throughthe workplace, in order of relative impor-tance, are to maximize the potential of theemployer’s matching contributions, to attractand retain workers and to reduce the costof absenteeism, stress-related illness andunderproductivity associated with unresolvedfinancial issues.

How would you categorize these possible motivators for an employerto offer a financial planning advice service through the workplace?

(n=199)

Lackof knowledge

29%

Denial of theneed to plan

26%Inertia19%

Belief that someone else will take care of things 7%

Lackof time

7%

Lackof interest

5%

Not knowing where to go for help 5%

Fear2%

Enhance awareness of andappreciation for benefitsemployer already provides

(n=231)Decrease employer’s fiduciary riskby providing tools for workersto achieve financial success

(n=229)Maximize the potential of theemployer’s matching contributions

(n=225)

Attract and retain workers(n=234)

Reduce costs of absenteeism,stress-related illness andunderproductivity associatedwith unresolved financial issues

(n=229)

Primary SecondaryMotivator Motivator

85% 15%

54% 46%

48% 52%

41% 59%

16% 84%

Some experts have predicted financial planning benefits areon their way to becoming a mainstream work/life benefit.To what extent do you agree or disagree?


� Thirty-seven percent (37%) of respondentsenvision the scope of financial planningbenefits evolving beyond investment andretirement planning toward comprehensivepersonal financial management.

In what direction do you envision the scopeof financial planning benefits to evolve?

(n=234)

Likelyto become

mainstream17%

Likely to increase,but not become mainstream

77%

Not likelyto increase

4%

No opinion2%

(n=234)

Toward comprehensive personalfinancial management

37%

Limited to investmentand retirement planning

58%

Do not anticipategrowth of financialplanning benefits

3%

No opinion2%

� Ninety-four percent (94%) of CENSUSrespondents agree that financial planningbenefits are likely to increase.

Seventeen percent (17%) of respondentsindicate that financial planning benefitsare likely to become mainstream.


� The most frequently reported numberof investment choices in self-directed401(k) or similar plans among employersof CENSUS respondents is 10-14.

Nearly one-third (30%) of employerssponsoring self-directed 401(k) or similarplans offer fewer than ten investmentchoices and one-third offer 15 or moreinvestment choices.

How many investment choices does the employer’sself-directed 401(k) or similar plan offer?

� Life-cycle funds, funds in which asset allo-cation is based on an individual’s tolerancefor investment risk and number of yearsbefore they need to withdraw their savings,are offered as an investment choice among46% of CENSUS respondents whoseemployers sponsor 401(k) or similar plans.

Does the employer’s self-directed 401(k) or similar plan include alife-stage or life-cycle fund?

PART III

(n=232)

4-930%

10-1437%

15-1910%

20-245%

25 or more18%

(n=227)

Yes46%

No51%

Don’t know3%

3 or fewer0%

� Eighty-two percent (82%) of CENSUSrespondents indicate the employer doesnot offer a self-directed brokerage windowamong their investment options.

Three quarters of those employers notoffering a self-directed brokerage windowalso indicate a self-directed brokeragewindow is not under consideration.

Do the investment options in the employer’s 401(k) or similar planinclude a self-directed brokerage window?


� Thirty percent (30%) of employer respon-dents offer an interactive online investmentadvice service.

Among employers with fewer than 500employees, the percentage offering aninteractive online investment adviceservice is slightly lower than the groupas a whole (24% versus 30%).

Among all employers offering onlineinvestment advice, 91% offer it as anadjunct to other types of financial plan-ning programs for employees.

Does the employer offer an interactive online investmentadvice service?

(n=231)

Yes15%

No82%

Don’t know3%

(n=231)

No69%

Yes30%

Don’t know1%


� Of those employers not offering an interac-tive online investment advice service, 25%indicate an online investment advice serviceis under consideration.

If the employer does not offer online investment advice, is an onlineinvestment advice service under consideration?

�The most frequently mentioned reason why employers do not offer an online investment advice serviceis concern about fiduciary liability.

If the employer does not offer online investment advice, why not?

(n=160)

Yes25%

No34%

Don’t know9%

Missing32%

Fiduciary liability concerns

Cost to employer

Uncertain of best type of program

Not a role for the employer

Lack of employee interest

Indecision about vendor

Other

0 10 20 30 40 50 60 70 80Percentage of employers

3925

2119

10

8

14

(n=160)

� Eighty-three percent (83%) of all employerrespondents provide some type of financialplanning program for employees other thanor in addition to online investment advice.

Of the 17% of employers not offeringfinancial planning programs other thanor in addition to online investmentadvice, 26% anticipate doing so thisyear or next.

Does the employer provide any type of financial planning program foremployees other than or in addition to online investment advice?


�The most common elements of other types of financial planning programs among employer respondentsare group meetings with a 401(k) or similar vendor, Internet access to informational sites andinformation from the benefits or human resources department.

If the employer provides any type of financial planning programother than or in addition to online investment advice, what doesthe financial planning program include?

(n=234)

Yes83%

No17%

Group meetings with 401(k) or similar vendor

Internet access to informational sites

Information from benefits or human resources departmentOngoing communication campaign

(e.g. newsletters, posters, payroll stuffers)Financial counseling through EAP

Periodic in-house seminars other than with 401(k) vendor

One-on-one meetings with 401(k) or similar vendor

Phone hotline or call center

Books, tapes, worksheets or other generic information

Availability of a personal financial planner


60

51

49

46

39

34

24

17

16

13

(n=193)


� Over three-quarters (78%) of the onlineinvestment advice services offered byemployer respondents have been in placefor two years or less.

How long has the online investment advice service been in place?

� For the majority of employer respondents(62%), the decision to use an online adviceservice was prompted by a suggestion froma 401(k) or similar vendor.

What primarily prompted the employer’s decision to usean online advice service?

(n=49)

Less thanone year

33%

1-2 years45%

Over 2 years22%

Employeesrequested

4%

Employerinitiated

26%

401(k)or similar vendor

suggested62%

(n=50)

Don’tknow8%

� Eighty percent (80%) of employer respon-dents did not assess employees’ level ofinterest or financial awareness prior toimplementing the online investment adviceservice.

Prior to implementing the online advice service, did the employer surveyemployees to assess their levels of interest and financial awareness?


� Almost three-quarters (74%) of employerrespondents implementing an investmentadvice service selected the service basedon the existing alliance between theircurrent plan vendor and the advice service.

The majority of employer respondents(71%) did not outsource the task ofselecting an investment advice serviceto a consultant or other professional.

How did the employer select the investment advice service provider?

(n=49)

Yes8%

No80%

Don’t know12%

(n=50)

Alliance existed betweencurrent vendor and

advice service74%

Employer changedvendors to one alliedwith an advice service

12%

Employer selected independent adviceservice not allied with existing vendor

2%

Don’t know12%


� Forty percent (40%) of employer respon-dents offering an online investment adviceservice investigated, decided on and imple-mented the advice service within a year.

How long did it take to investigate, decide on and implement theinvestment advice service?

�Specific outcomes of offering an online investment advice service are not yet clear: 70% of employerrespondents have either not measured the impact of online investment advice services or do not knowthe impact.

Among the handful of employer respondents indicating outcomes of offering online investment advice,shift in asset allocations and employee perception of making better investment decisions are mostfrequent.

Has the online investment advice service resulted in anyof the following outcomes?

(n=47)

3-6months

15%

7-12months

19%

More thana year13%

Don’t know47%

Shift in asset allocations

Employee perception of makingbetter investment decisions

Increased level of contributions

Greater participation in the plan

Have not measured impact

Don’t know

1-2months

6%


18

14

6

6

38

32

(n=50)

� The majority of employer respondentsoffering an online investment advice serviceindicate employees are not charged a feeto use the service.

Does the employee pay a fee for useof the online investment advice service?


� All available participant feedback aboutonline investment advice services offered byemployer respondents has been positive.

Nearly half (49%) of employers have notsolicited feedback about the online invest-ment advice service.

Overall, what kind of feedback has the employer receivedfrom participants about the online investment advice service?

(n=49)

Yes8%

No84%

Don’t know8%

(n=49)

Very positive6%

Positive45%

Have not solicitedfeedback

49%Very negative

0%Negative

0%


�Online investment advice services offered by employer respondents vary considerably in their levelsof sophistication.

How sophisticated is the online investment advice service?

� Almost all (92%) of the employer respon-dents offering an online investment adviceservice are likely to continue offering it.

Is the employer likely to continue to offer the online investmentadvice service?


58

56

44

22

22

Personalized with plan participant employmentand plan participation data

Customized to reflect employer’s fund choices

Generic modeling

Able to retrieve and integrate investment account infor-mation from outside the employer’s plan (via PIN)

Able to advise on other financial issues such ashome buying or funding a college education

(n=50)

(n=49)

Yes92%

Too soon to tell8%

No0%

� The largest percentages of respondingemployers are from the Midwest (31%)and the Northeast (29%).

In what geographic location is your employer primarily located?


� Seventy-nine percent (79%) of respondingemployers have 500 or more employees.

Size of employer

PART IV

Number ofRegion Employers Percentage

Northeast 67 29Southeast 34 15Midwest 73 31Southwest 21 9Mountain 3 1West Coast 15 6(Missing) 21 9

Total 234 100

Number of Number ofEmployees Employers Percentage

Less than 500 46 20500-4,999 91 395,000 or more 95 40(Missing) 2 1

Total 234 100


For More Information on Financial Planning Benefits

“Financial Planning Education,” In Focus, May 2001 (Vol. 1, No. 2), published by theInternational Foundation of Employee Benefit Plans. Individual copies are available for $10each. Quantity discounts are available. To place an order call (888) 33-IFEBP, option 4; ore-mail [email protected]. International Foundation members can access the full text of theperiodical online at www.ifebp.org/members/infocus501a.asp.

Personal Financial Planning, Sixth Edition. G. Victor Hallman and Jerry S. Rosenbloom,Editors. With the introduction of a myriad of new financial products and strategies available toindividuals and families, this popular book is an essential addition to your library. It will serveas a guide to the latest information on mutual funds, employee stock plans, IRAs, estate andwealth conservation techniques, newer forms of life insurance and annuities. Examples, plan-ning tips, charts, graphs and case studies will assist you in keeping up with a technologicallycharged market. McGraw-Hill. 629 pages. Item #8272. $43. To order call (888) 33-IFEBP,option 4.

Copies of the survey results are $25 each. Quantity discounts are available. To order, contact:

International Society of Certified Employee Benefit Specialists18700 West Bluemound RoadPost Office Box 209Brookfield, WI 53008-0209Phone (262) 786-6710, ext. 8588Fax (262) 786-8650E-mail [email protected]

Survey results are available online at www.iscebs.org.

Please send me _____________ copies of New Kid on the Block: Financial Planning as an EmployeeBenefit. Copies are $25 each. (Call for quantity discount.)

Name ________________________________________________________________________________

Shipping Address ________________________________________________________________________

________________________________________________________________________

Phone ________________________________________________________________________________

Payment must accompany order: $ __________________________________________________________

■■ Check enclosed■■ Charge to my MC/VISA/AMEX ____________________________________ Exp. ______________


Disclaimer: Neither the selection of the CENSUS topic nor discussion of the data is intended to be an endorsement of thattopic by the International Society of Certified Employee Benefit Specialists. Topics are selected for their informational valueto benefits professionals. Any opinions, expressed or implied, are those of the author.

©2001 International Society of Certified Employee Benefit SpecialistsAll rights reserved.Printed in the United States of America. 8M–12/01

Two courses in financial planning are available from the International Foundation of Employee BenefitPlans. As financial planning becomes a more integral part of the total rewards package, professionals inall areas of benefits and human resources need to be familiar with the concepts and principles of finan-cial planning. These courses, developed through the CEBS program, will help you to:

➤ Develop an in-depth knowledge of financial planning concepts and principles

➤ Position yourself to benefit from the growing synergy between employee benefits and financial planning

➤ Become more aware of issues affecting your own financial security.

The courses and exams are structured in a format similar to the CEBS courses. Examinations are admin-istered on computers at test centers around the country.

For complete information, contact the CEBS Department at (262) 786-6710, ext. 8563Fax: (262) 786-8650E-mail: [email protected]

Courses in Financial PlanningThrough the CEBS® Program

CE011026

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PAIDMILWAUKEE, WI.PERMIT No. 1633

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