‘Next best dollar,’ a benefits application for retirement plan advisers

As the convergence of wealth, retirement and benefits at work gains momentum, the essential issue is how to help employees who can’t afford traditional ongoing financial planning. That’s more than 95% of the workforce.

There’s an opportunity to reach people and assist with their financial and benefit issues. That topic, which includes helping workers allocate benefit and retirement dollars, came up repeatedly at the InvestmentNews RPA Convergence Broker-Dealer Roundtable and Think Tank in October.

When workers start a job, they can be overwhelmed by the myriad options related to health care and retirement benefits, and may have little time to evaluate the choices. And most employees don’t adjust benefits, especially within their retirement plans.

Though automatic features now popular with 401(k) and 403(b) plans have been hugely beneficial, do a standard contribution and automatic escalation rate fit everyone? Choices and allocations should be personalized, just as with investments, which is why managed accounts make more sense than target-date funds for some.

Further, there’s a war for talent heating up, fueled by the Great Resignation and by more workers retiring as a result of the pandemic. Benefits have become more important than ever, with retirement a critical area for younger workers who aren’t sure Social Security will still be available when they retire, never mind long-gone pension plans.

Advisers need to establish their brand with employees. Their record keeper and health care provider are front-and-center when workers enroll and access benefits. Rather than periodic half-hour meetings throughout the year with the goal of “financial wellness,” helping employees properly allocate their discretionary benefits dollars will have a great impact, and be something to follow up on annually.

When people change jobs, they may be enrolled in a new plan at a lower contribution rate than they had with their former employer, which makes no sense. It is also likely that the employee will have gotten a raise – so why not allocate a portion of that to the defined-contribution plan? It’s money they won’t miss.

At the B-D roundtable, no one knew of an application that helped workers properly allocate benefit spending, though MassMutual developed something years ago that has morphed into Empower’s MapMyFinances. Voya has partnered with Savvi Financial to offer a similar service. But the issue with platform-based solutions is that advisers can’t apply them to all clients, and there can be problems when plans change providers.

The benefit allocation algorithm should be based on demographics, income, savings and family situation. Much of that information is available, though maybe not accessible, from payroll and health care systems. Getting the data directly from employees might be easier and can be the beginning of a useful dialogue that should be augmented, rather than replaced, by technology. Having an employee data warehouse not only helps with personalization but also informs employers about which benefits they should be offering.

Though the DC industry espouses that everyone should contribute as much as possible to their retirement plan, lower-income workers with families might be better off buying insurance. And higher-income workers will need to save more than the current limits, so deferred compensation options might make more sense if available.

There are many options people saving and paying down debt now have at work:

• DC plans (affected by contribution rates, auto escalation, asset allocation and Roth options).
• Health savings accounts or flex spending accounts.
• Student loan repayments.
• Emergency savings accounts.
• Retirement income options.

Helping employees with financial wellness, including those options, not only starts a relationship, but it can give the adviser access to more data.

Many RPAs don’t understand benefits and may not be comfortable helping workers with health care and other choices. Experienced RPAs might want to hire a “wellness coach” who could identify good wealth management clients.

Similarly, traditional wealth managers and financial planners may not be comfortable with health care and retirement options at work. But benefits are cheaper at work, leading to the inevitable convergence. That will soon include retirement income and retirement spending options. Not understanding a client’s options, even for wealthy employees, is borderline malpractice.

Providing a comprehensive, “next best dollar” retirement and benefits plan is a real application of financial wellness. It can help advisers build relationships and add value to the plan sponsors that are looking for a way to provide competitive benefits.

Fred Barstein is founder and CEO of The Retirement Advisor University and The Plan Sponsor University. He is also a contributing editor for InvestmentNews’​ RPA Convergence newsletter.