Employees Who Need Financial Support the Most Are Often Overlooked

Ensuring retirement readiness is not merely an altruistic endeavor; it’s a smart business strategy that helps drive productivity, engagement and retention. Unfortunately, the retirement industry’s prevailing approach places a higher value on employees with larger 401(k) balances, directing a disproportionate share of resources, guidance and sophisticated planning tools their way.

Meanwhile, employees with smaller balances, who may be earlier in their careers, earning less, managing debt or balancing competing financial priorities, are often overlooked because their assets are deemed less requiring of nurture.

Nothing could be further from the truth. Employees with smaller 401(k) balances often have limited financial literacy. In fact, just 13% of HR professionals rate their early-career workers as “very financially literate.” These workers need thoughtful financial planning the most, but don’t move the needle on assets under management, so they often receive significantly less attention.

Most working Americans don’t have the time or initiative to take matters into their own hands and strengthen their financial acumen. This creates a significant gap in financial wellness. The employees who need the most help building confidence, understanding their options and taking the next step toward long-term security are not usually the ones getting the primary support.

Embracing a New Model

Employers (and their HR teams) have an opportunity to rethink how financial guidance is delivered, so it’s not just available to those with large asset balances, but accessible and relevant to the people who deeply need it. Unfortunately, the retirement industry has a fundamental problem: Too many providers claim to support “financial wellness” while their business model works against it.

Under pressure to cut costs, fiduciary committees sometimes compromise recordkeeper independence or accept conflicted virtual setups that blend recordkeeping with asset management. When recordkeeping is bundled with an asset manager, the service often is discounted or even given away because compensation is tied overwhelmingly to assets under management.

Independent, workplace-based financial planning through 401(k) plans is a possible solution. It can democratize access to advice once reserved for the wealthy. An independent provider of retirement recordkeeping doesn’t have a vested interest in directing flows to any particular investment lineup. Their success is measured by how effectively they help every participant, regardless of their current balance.

Such providers build guidance, tools and experiences that serve the entire workforce — from the newest hire with a modest balance to the long-tenured executive. Incentives are aligned with what plan sponsors and fiduciaries actually want, which can be better outcomes for all employees.

Editor’s Note: Additional Content

For more information and resources related to this article, see the pages below, which offer quick access to all WorldatWork content on these topics:

• Employee Benefits
• Employee Experience
• Well-Being