EAPs need to address debt in investment counselling

Canadian employees are too in debt to think about retirement planning.

That’s the implication from a recent report by Morneau Shepell, which shows more workers are accessing their employee assistance programs (EAPs) for debt and credit issues, but fewer are seeking help with investment planning.

According to the report, 63.2% of the time that people accessed their EAP for financial assistance last year, it was for personal debt and/or credit issues. That was followed by divorce/finances at 8.7%, bankruptcy at 7.4%, retirement at 5.7% and taxes at 4.6%.

“The fallout of the financial crisis was continuing as employees tried to work their way out of debt,” says Karen Seward, executive vice-president of business development and marketing for Morneau Shepell. “And now that the credit rating of the U.S. has been downgraded to an historic low and the global economy [is spiralling] downward, we expect this to continue.”

According to recent figures from Statistics Canada, the net worth of Canadian households fell 0.3% last spring and the ratio of household credit market debt to disposable income grew from 147% to 149%.

However, as EAP access for debt and credit advice grew, access for investment planning purposes dropped significantly—a sign that employees are too concerned with current debt to plan for their futures. Morneau Shepell’s report showed an 80.7% decrease in cases involving investment planning.

The decline poses a concern for DC plan sponsors who are trying to encourage members to become more engaged in their plan investments. The key, says Kevin Sorhaitz, partner at Morneau Shepell, is to combine debt counseling with investment planning, so that members can have a better understanding of how current debt is connected to future retirement.

“Even though the responsibility with the DC plan is to educate about pensions, I think it would be prudent and beneficial for plan sponsors to broaden some of that education to include credit and debt, so that there’s a bigger picture that they’re learning about,” says Sorhaitz.

“We know, based on studies, that plan members for DC are in over their heads as far as being able to make financial decisions over the long term to really grow their asset base. In other words, compared to DB, they’re competing with professional investment managers when it comes to the asset mix decisions.”

Seward says that in light of the current economy, she expects EAP access for financial matters such as investment planning will continue to decrease throughout this year, and that employers need to be proactive about investment education.

“Debt and credit problems are causing people anxiety and stress. That’s why they’re picking up the phone and accessing [their EAPs],” she says. “How do we get in earlier? How do we help coach, educate and provide information to employees on better managing their finances, so that [financial stress] doesn’t impact the workplace?”