Companies step up to help employees build wealth

Some businesses offer additional incentives, such as retirement plans, ownership options and financial literacy education to help their employees achieve financial security.

Sticking with tradition

Pension plans traditionally have been the cornerstone of employer tools for building employee wealth, but as more plans become self-directed, employers face additional questions and higher risks.

Brian Allen, president of Springfield-based Pension Consultants Inc., provides independent analysis and advice for companies with retirement plans greater than $5 million. He sees those plans as a cornerstone of building employee wealth.

“The offering of a retirement plan is probably the main thing,” Allen said. “The trend of the last 20 years toward employee-directed retirement plans has put the burden on the employees of having to decide how to invest the money and how much to put in.”

Allen is often called in to review his clients’ retirement plans.

“They typically want … someone to come in and make sure the plan works right, there are not any weaknesses and they are complying with all of the regulations,” Allen said.

The traditional pension, or defined-benefit, plans have declined, Allen said.

“Most of the companies that wanted to get out of those defined-benefit plans have probably gotten out of them,” he said.

In self-directed, defined-contribution plans, companies often offer matching funds, usually a certain amount on the dollar up to a certain percentage of income invested in the plan, for employees, and the employees must decide how much money to set aside.

“Most common would be 50 cents on the dollar up to 6 percent deferred,” Allen said.

He cautions employees who can choose their percentage to be matched to get as much benefit as possible.

“If you are not doing at least the 6 percent, you are really cheating yourself,” he said.

That money can be placed in a variety of investments, and again, the participating employees have a voice in how their money will be placed.

Offering ownership

Beyond retirement plans, employee stock ownership plans can be used by companies to help their employees build wealth, but Allen warns that ESOPs aren’t for everyone and come with risks.

“For the employee, you already have your career tied up in that company,” Allen said. “Now if you invest in it as well, you have a whole lot riding on one company. If that business turns south, you could lose your job and your retirement.”

There’s also an inherent risk with ESOPs when they’re offered within the company retirement plan, and employees must choose between company stock or other investments.

Under the Employee Retirement Income Security Act of 1974, when companies offer an ESOP, it’s supposed to be conducted in the best interest of participants, which can lead to a conflict of interest, particularly when the company also is publicly traded and there are other shareholders.

“If you are the chairman of the board of that company, how can you act in the best interest of members of that retirement plan and promote your own company’s stock?” Allen said.

Springfield-based insurance firm Ollis & Co. introduced its ESOP in 1984, but Chief Operating Officer Matt Scheihing said the company avoids any conflict of interest because the ESOP is offered in addition to the 401(k) plan as a bonus. That way, employees don’t have to choose company stock over their other investments in the company-sponsored 401(k).

“Historically, our employees have seen a 10 (percent) to 12 percent investment into their ESOP account,” Scheihing said. “If you have someone making $30,000 a year, they could see around $3,000 in their ESOP account.”

Jayne Edley-Thompson, an Ollis & Co. employee of five years, said she doesn’t worry about her ESOP.

“I feel very secure with it. It has performed very well,” she said.

Learning the ropes

Edley-Thompson makes it a habit to put a little money away with every paycheck, and she said her investments are diversified between the ESOP, the company 401(k) and other vehicles.

She’s just the sort of employee Alice Whinnery likes to see.

Whinnery, CEO of the LFE Institute, teaches wealth-building skills to area employees.

Whinnery said companies need to do more than tell employees how much money they should put into retirement plans.

“You can’t tell someone who can only eke out 2 percent of their paycheck … to save 10 percent,” she said. “They’ll get discouraged and not do anything.”

Whinnery teaches fundamental money management and an understanding of wealth in the workplace.

Among her recommendations: avoiding high-interest consumer credit cards, avoiding banking fees and automated teller machine fees, budgeting, better deals on large purchases and controlling impulse spending. In short, employees are taught to watch their money, hang onto it and value future investment over blind consumption.

“The average worker in our workshop is able to add $3,000 to $5,000 to their paycheck in the next year without their employer adding a dime to the payroll,” Whinnery said, pointing to smarter spending habits.

Pension Consultants’ Allen sees the workplace as the logical place for such an education.

“It probably shouldn’t be surprising to us that so many people get into financial trouble with credit card debt and so forth,” Allen said. “Nobody really taught them.”

Credit card debt, family struggles over wealth and worry about the bills are the main reason employees don’t take advantage of wealth-building tools such as self-directed retirement plans and 401(k)s, Whinnery said, and those same issues can be a drain on productivity.

“The new term out there is presenteeism,” Whinnery said. “The employee is present in body, but not in mind. Their mind is saying, ‘How am I going to make this payment? How am I going to pay these bills? How am I going to save for retirement?’”

The need for education in terms of wealth management is magnified when employees have to make their own decisions about investing their retirement funds.

“They have to decide how much to put in and where to invest that,” Allen said. “Many employees are just not equipped to do that. There has been a growing trend for the last 10 years to provide education and advice to employees on how much to save for retirement and where to invest the money they do save.”