Driving Better Participant Outcomes: Taking the Holistic

Approach to Advising EmployeesE. Thomas Garman

Panelists: Daryl Thompson, Grant Slade,Kelly Mullin, and Scott Coopersmith

Presented atP&I East Coast Defined Contribution

Conference 2006February 28, 2006

The PGA National Resort & SpaPalm Beach Gardens, FL

After All These Years…Employers have not been successful

at getting employees to take ownership of the retirement planning task

Employees are still not prepared to carry the retirement planning responsibility passed to them by their employers

While employers realize that communication, education and advice are “their job,” they still do not know how to best help employees

Let’s Be Frank…Participation and deferral rates

remain inadequateEducation and advice programs

have failedEmployees do not know what they

don’t knowGetting good help costs money and

most employers and employees do not understand the value of help

Meanwhile, employers know many are not prepared for retirement. This is a correct assessment!

National Norms for FinancialWell-Being on IFDFW Scale©

5.46.9

8.29.2

14.5 14.2 13.8

12.211.4

4.2

0.02.04.06.08.010.012.014.016.0

1 2 3 4 5 6 7 8 9 10

Percentage

(Mean=5.7; SD=2.4)

Source: InCharge Education Foundation, National Norms on InCharge Financial Distress/Well-Being Scale© for General Adult Population. 1 Means “Overwhelming Financial Distress/Worst Financial Well-Being”; 10 Means “No Financial Distress/Excellent Financial Well-Being” ©Copyright by InCharge Education Foundation and E. Thomas Garman, 2004-2006. All rights reserved.

(1-4: 30%) (5-6: 28%) (7-10: 42%)

(1-4: 30%) (5-6: 28%) (7-10: 42%)

Big Point

“Financially illiterate employees do not

make the best decisions for

themselves or their employer”

Annual Per Employee Costs of Ignoring Financial

Illiteracy ©1. Lost productivity

$450a

2. 401(k) Participation-Non/low (FICA) 0b

3. Health care reimburse (FICA) 76c

4. Dependent care reimburse (FICA) 382d

5. Health care costs (poor health) 300e

6. Traditional health plan choice 800f

7. TOTAL $2,000+

© E. Thomas Garman, Personal Finance Employee Education Foundation, 2006.

“Employer cost for no action is $450 to $2,000+!”

A Holistic View of the Problem

A holistic view today means the employer recognizes and deals with all aspects of an employee’s personal finances rather than focusing on exclusive portions, such as a 401(k) plan.

Some Holistic Employer Considerations

1. ERISA2. Sarbanes-Oxley3. And thinking more about doing what is morally right

for employees—have them be better off financially when they leave you than when they started with you

Thus, the “problem” is bigger than what first appears…AND it is an opportunity to profit

Holistic Conclusions for Employers

1. Nationally 30% of employees are dissatisfied with their personal financial situations (scores of only 1-4 that are less than middle [5-6])

2. By measuring employee financial well-being employers can establish useful baseline information

3. Identifying steps to take to increase financial literacy is required

4. Result: Both measuring and taking action on education-advice provides genuine legal protection for employers

Employer’s Holistic Solution

Organizational commitment to employee financial literacy…perhaps a

campaign…for the bottom line

Financial Literacy

Recognize that financial literacy is not just about acquiring personal finance knowledgeThe most important part of financial literacy is to apply the knowledge by practicing good financial behaviorsPeople cannot build assets without good financial literacy

Employer’s Solutions Fix employer weak spots: choices to

participate in 401(k) plan, level of deferral, participation in reimbursement plans, health care choices

Communicate to ALL employees to combat financial illiteracy

Provide education A N D advice Help employees consider all benefits as

well as assets and resources of spouse/significant other, real estate, other investments, Social Security, future income generating resources, and healthcare costs

Employer’s Outcomes

1. Documented efforts provide substantial genuine protections under ERISA and Sarbanes/Oxley

2. Employees are more engaged at the workplace providing improved job productivity and revenue

3. Lower human resources administration costs

Employer’s Outcomes

4. Reduced health care costs5. More FICA “cash money on the

table” for employers to keep6. A positive ROI on every dollar

invested in improving employee financial well-being

Questions Posed to Progressive Plan Sponsors

and/or Providers1. Define “education” and “advice.”2. Where can education and advice

be best used independently and in tandem?

3. Why is this the employer’s problem and how is it in the employer’s best interest to educate and advise?

Questions Posed to Progressive Plan Sponsors

and/or Providers4. How should employers provide

holistic education AND advice rather than just explain employer benefits?

6. What results can a powerful program be expected to generate?

Footnotesa See research and press releases at www.ethomasgarman.netb $1,200 contribution to 401(k) has no FICA implicationsc $1,000 contribution to health reimbursement plan ($1,000 X 0.0765)d $5,000 contribution to child care reimbursement plan ($5,000 X 0.0765)e Very conservative estimate; research underwayf Employee chooses higher-cost employer health plan

Contact Information• E. Thomas Garman, Author, Advisor and Distinguished Fellow;

Professor Emeritus and Fellow, Virginia Tech University; 9402 SE 174th Loop, Summerfield, FL 34491; Tele/Fax: 352-347-1345; E-mail: ethomasgarman@yahoo.com; Web: www.ethomasgarman.net

• Scott Coopersmith, Vice President, Diversified Investment Advisors, Tele: 914-697-8588; E-mail: coopers@divinvest.com; Web: www.divinvest.com

• Kelly Mullin, Vice President, Merrill Lynch, 1400 Merrill Lynch Drive, Pennington, NJ 08534; Tele: 609-274-6207; E-mail: kelly_mullin@ml.com; Web: www.ml.com

• Grant Slade, Vice President of Marketing and Business Development, Myfinancialadvice.com, 3005 Center Green Drive, Ste. 115, Boulder, CO 80301; Tele: 720-942-0910; E-mail: grant@slade.net; Web: www.myfinancialadvice.com

• Daryl Thompson, Independent Consultant, The EDSA Group, One Oak Square, 8280 YMCA Plaza Drive, #4, Baton Rouge, LA 70810; Tele: 800-942-2777; E-mail: dthompson@theedsagroup.com; Web: www.theedsagroup.com