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Human Resources

Prepping Employees for Their Golden Years

Part one of a two-part column on retirement planning at colleges and universities
University Business, Sep 2008

VIRTUALLY EVERY HIGHER ed institution offers some type of employee retirement program along with a handful of optional workshops on retirement-related topics. But is that enough? Considering the country’s soaring gas prices, inflation, skyrocketing health care costs, global terrorism, dropping home values, and Social Security’s shaky status—just to name a few worries—should IHEs be doing more to prepare employees for retirement?

Results from a recent survey lean in that direction. The Employee Benefit Research Institute cosponsored the 2008 Retirement Confidence Survey, in which 1,057 workers age 25 and up, as well as 265 retirees, responded to a series of retirement-related questions. Some key findings:

--Twenty-two percent of workers and 28 percent of retirees reported they have no savings of any kind.

--The percentage of workers who were very confident about having enough money for a comfortable retirement decreased from 27 percent last year to 18 percent this year, which reflects the biggest one-year drop in the history of the survey.

--Almost half of the retirees (44 percent) stated that they spent more than expected on health care expenses.

--Nearly half the workers reported total savings/investments (excluding the value of their primary residence or any defined benefit plan) of less than $50,000.

The bottom line is this: Unless the economy changes or the saving and spending habits of American workers do, many will be in trouble when they retire—that is, if they ever can retire.

Many people who come into Paul Strebel’s office at Cornell University are just a few years away from retirement, yet are clueless as to their financial retirement status. A finance professor at Cornell and also a certified financial planner with The Strebel Planning Group in Ithaca, N.Y., he says some of his colleagues are surprised to learn they really can’t retire in two years—that they may need to work another five.

'We want to help [employees] not only have the information but also help them digest it.' -Margarita Acevedo, University of Miami

Cornell and other IHEs offer a variety of free retirement education seminars, usually conducted by financial service firms. But many of his clients rate those workshops as “very poor.” The main reason, he says, is that the financial advisors can’t go into depth with employees because they’re unfamiliar with their portfolios, which makes it almost impossible for them to offer meaningful advice. Instead, they address generic topics, such as the importance of diversifying investments. While important, employees need more than just the basics. He believes IHEs would be better off providing workshops on specific topics, such as high-risk investments or how to interpret your financial statement.

Even so, some schools are still missing the boat because they’re targeting employees too late. They need to communicate retirement issues and best practices to employees when they reach the age of 40. “The earlier employees start looking at this, the better,” Strebel says. “The longer employees wait, the less options they have.”

At least one institution has taken a more aggressive stance. The University of Miami recently contracted with a third-party investment firm—Invesra Inc. in Boston—to offer financial planning and investment advice to its 10,800 employees, says Margarita Acevedo, executive director of retirement programs for the school.

“There are so many demands on people’s time, they’re not focusing on the long term,” she says. “As an educational institution, we do want to provide education. But in addition, we want to help [employees] not only have the information but also help them digest it and see how it applies to them long term.”

Last year, the university froze enrollment in its traditional pension plan. Participants were asked to either stay with that plan or transfer their retirement income to a new defined contribution plan with a matching contribution. Roughly 2,000 employees made the switch.

To help with their transition, she says Invesra offered two online planning and advisory tools last year. The first was a one-time tool placed on the school’s website. Employees didn’t need to register or open accounts. They simply answered four questions about: their current age, the age they want to retire, what type of investor they are (conservative, moderate, or aggressive), and what investment company they prefer. The university offers five different investment companies that feature more than 450 investment opportunities.

Based on their responses, the employees received investment recommendations.

The idea was to prime them for self-directed financial planning, where they would make decisions and set goals. They could also use the recommendations to complete their enrollment applications.

“This is a very unique service,” says Acevedo. “None of the employers in Dade County have it, so it really sets us apart.”

So does Invesra’s other online tool, which was launched last October. Employees access it through an employee portal on the school’s website. They create a personal profile by entering pertinent data, such as their salary, age, marital status, and when they’d like to retire. Within a few moments, they learn how much household income they will need during retirement to meet their needs. They can also import all of their tax-deferred investment accounts into Invesra’s web-based system, which will then offer investment advice based on their personal circumstances, such as their retirement goals and risk tolerance.

So far, 600 employees have taken advantage of this service. Whether it’s a novice or serious investor, or someone in between, Invesra automatically reviews their portfolio every three months, then rebalances their investments as needed. While the other self-directed services are free, Acevedo says employees pay an annual fee of up to $500 for this management service, regardless of the size of their portfolio.

To help market this service to employees, UM launched a series of financial seminars last year and pays for a full-time Invesra employee to work on-site in its benefits office. Every day, a few more employees sign up to use the program. By the end of this year, approximately 1,000 more are expected to be enrolled.

Is preparing employees for retirement a back burner item on HR's to-do list?

Still, not all university HR teams are comfortable offering independent investment advice as an employee benefit, says Jim Gagne, a retirement consultant. In the past, he says, IHEs offered financial education but rarely financial advice for fear of violating the Employee Retirement Income Security Act of 1974 (ERISA), a federal law that covers retirement, health, and other welfare benefit plans. But the Pension Protection Act of 2006 shifts the fiduciary liability from the employer or school to the financial advisor, making it possible for universities and colleges to offer valued financial advice, he says.

Although UM is the first U.S. higher ed institution to use the online service, others are considering it. “Universities typically offer more than one retirement plan,” Gagne says, explaining that investment companies usually operate independently and compete with each other. “There’s no place [for employees] to go to get a consolidated view of their assets, to get advice across all of those assets. It’s just a matter of time before universities and colleges start to come around and look seriously at this.”

Helping employees make wise investment choices is in everybody’s best interest. No school wants disgruntled employees—those who must work because they don’t have enough funds to retire.

Start by changing your school’s priority about preparing employees for retirement. Is it a back burner item on HR’s to-do list, or is it considered as important as equipping employees with the skills and knowledge they need to perform their job?

At The University of Texas System, retirement education and investment advice is a high priority, right next to affordable health care. Retirement workshops are even considered professional development, says Faye Godwin, manager of retirement programs at UTS, which is the plan sponsor/administrator of retirement programs for 90,000 employees at 15 institutions.

The school used to have a more laissez-faire approach. Employees could choose from 100-plus financial firms that independently marketed their own investment opportunities. Talk about confusion. In 2006, that all changed. UTS pulled in the reins through the request-for-proposal process and ended up with just six investment firms that work in unison to market the benefits of the UTS retirement program.

“People caught on pretty quickly that by pulling our resources together to communicate the program to employees, they would derive more business in the long run,” Godwin says.

Participation in the voluntary retirement plans jumped from 16 percent in 2006 to 25.5 percent in 2008. Over a three-week period, UTS sent nonparticipating employees an e-mail followed by a postcard, then another e-mail about the program changes. Employees could also register for free financial seminars, attend an annual retirement fair, or meet one-on-one with a vendor after each employee orientation. Changes were made to the program website too. It now displays a list of more than 700 investment funds and tracks their performance over the last decade.

The whole point is to help employees better understand their investment opportunities and demystify the often confusing and overwhelming process of investing. “We’ll continue to reach people, make it understandable to them and less intimidating,” Godwin says. “We work on this every single day.”

Every school has areas in which it can improve. Retirement education and planning is no exception.

Part two of this column, to be published in November, will feature creative practices that schools can implement to help employees retire with dignity.

Carol Patton is a Las Vegas-based freelance writer who specializes in covering HR issues.