Failure to Educate

According to a 2007 Credit Canada study, 61% of Canadians do not have a financial advisor. Without proper and timely assistance, employees may react to economic conditions based on emotion alone and make poor decisions—for example, selling investments at the wrong time.

Furthermore, employers that are considering pension plan conversions or windups during this time need to remember that employees face a number of important decisions.

For defined benefit plans, options can include taking a deferred pension or moving the commuted value into a locked-in retirement vehicle. For defined contribution plans, options include transferring the assets to a new plan (if permitted), moving them into another locked-in vehicle or staying with the current provider in a “house plan” (a plan mirroring the existing one that removes the employee from the employer’s plan).

Employees nearing retirement also need to consider how and when they will convert their savings into a retirement income stream. Options can include purchasing an annuity or transferring the funds to a registered locked-in vehicle.

Budget Breakdowns
As workers’ incomes and other benefits decline, budgeting and personal money management are also concerns. The 2007 Credit Canada study indicated that 53% of Canadians do not have any type of budget in place. And, for those who do, 34% don’t follow it regularly.

Unfortunately, many people lack the basic skills to create and maintain an effective budget. Yet without a realistic budget, they may not adjust their expenses appropriately and could end up living extensively on credit.

Offering a financial assistance program that incorporates budgeting and the effective use of debt and credit instruments can help—and it may even make employees more productive. “Research shows that workers in financial stress are absent from work more frequently…spend excessive time at work dealing with their financial problems and experience a decline in job productivity,” says Paula Allen, vice-president, health solutions and research group, with Shepell.fgi.

Programs and Practices
While some employees may have a good grasp of their own financial issues, others will turn to their employers for direction. Those employers looking to give employees access to financial education and assistance have a few options.

An employer can add to an existing program or implement a new one. Either way, the program should be customized to the employer’s targeted employees (e.g., those within 10 years of retirement). Employers should consider demographics and corporate culture, use a mix of print, online and face-to-face materials to communicate the program, establish guidelines for best practices, and document all of their efforts.

Another option is to offer financial counselling through an employee assistance program (EAP). A Shepell.fgi study showed that access to financial counselling is rising at a rate twice that of all other EAP services, with a 75% increase from 2007 to 2008 in the number of cases dealing with credit issues. An added benefit of this approach is that the EAP can also provide ancillary counselling, such as dealing with associated stress, at the same time.

During a period when employers are looking to reduce costs, providing financial education is probably a distant thought. However, as employees face dwindling savings, reduced wages and life-altering financial decisions, the need for assistance has never been greater.

Asaf Shad is president and CEO of Acquaint Financial.
ashad@acquaintfinancial.com

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© Copyright 2009 Rogers Publishing Ltd. This article first appeared in the June 2009 edition of BENEFITS CANADA magazine.