There are a number of adjectives we could apply to the financial situations faced by average employees these days, and “positive” may be very far down the list. As HR professionals, we spend a lot of time trying to figure out how to maintain a productive workforce, encourage employee loyalty, and keep labor costs within reason–all through our employee benefits.

It’s asking a lot, especially when you consider these facts about medical costs:

• In 2004 (only 8 years ago!) the average annual cost of health insurance per employee was $6,059, according to a Hewitt Associates report. Of that figure, employees paid 35%, including their premium contributions of $1,068 and out-of-pocket costs of $1,051, for a total of $2,119 per year. 
• By 2011, the annual cost had risen to $9,821 and employees paid an average of 44.7%. Employee premiums were $2,209 and out-of-pocket costs were $2,177, totaling $4,386.

And these facts about retirement saving:

• Only 31% of employees have access to a defined benefits pension plan, according to the Bureau of Labor Statistics.
• Half of all people understand the basics about investing, according to Financial Finesse’s research.
• The same research indicates that 83% of employees feel unprepared to meet their retirement needs.

Add in the repercussions of the Great Recession, and you have a mix that’s just, well, depressing–to use an appropriate adjective. A few statistics from LPL Financial and Financial Finesse make it clear that company responses to escalating costs have left employees financially stressed as never before:

• Many companies deal with increasing benefits costs through cost-sharing, resulting in a much greater financial burden being borne by employees.
• Companies have suffered financially, resorting to layoffs, salary freezes, and salary cuts.
• Employees may have stopped 401(k) contributions, borrowed from their plans, used credit cards to survive, and made other desperate decisions that weaken their future prospects.

Teaching your employees financial education may be the best hope for many of them, according to Liz Davidson, CEO of Financial Finesse, Inc. (www.financialfinesse.com). Companies that provide this kind of education are, to paraphrase an ancient adage, teaching employees how to fish. “What they find is that as employees learn to better manage their money and control debt, they tend to be more active in their own retirement—freeing up dollars to save and learning about investing,” she says. “Our most recent research shows more employees are using calculators to check if they are on track for retirement, which is a positive sign.”

Delayed retirements cost employees and employers

When employees are unprepared to retire on time, the company also pays a price. Delaying retirement could cost the company $50,000 or more per year considering higher wages, health insurance, workers’ compensation, vacation days, and other benefits, when compared to replacing the older worker with a younger, less expensive employee. Morale among younger employees is also negatively impacted when they know their potential to move up within the company is reduced.

But financial education may be expensive. Considering that your company has been suffering right along with the employees, how can you find the money to provide it? One way, says Davidson, is to use your 401(k) plan’s ERISA account. This account is sometimes used to pay for plan expenses and sometimes refunded to participants. As long as the financial education is targeted toward retirement, using the ERISA account to pay for the education is acceptable to the government, according to a legal opinion obtained by Financial Finesse.

You may be in the habit of refunding extra funds that build up in the ERISA account to the plan’s participants, as many companies are. Davidson says that the payoff for using the money to educate employees is much greater than a onetime refund. Financial Finesse performed some calculations, assuming a $150 per employee refund and a 6% rate of return. A participant with 30 years until retirement could expect the $150 to grow to $862 by retirement age.

“However,” Davidson says, “if that money is used to provide a personalized, ongoing financial education program designed to help employees increase their retirement savings and better invest their assets within the plan, that $150 could mean as much as an extra $98,823 at retirement.” Those figures also assume a 6% rate of return, factor in a 2.5% increase in the amount deferred by the participant into the 401(k) plan over the remaining 30 years, and assume an average salary of $50,000.

Quality education demonstrates results

Sounds good on paper, right? But these days, it is imperative that you see actual results for any program you roll out, including financial education. In fact, Davidson says that if you can make long-term changes in employee behavior, financial education moves out of the nice-to-have category and straight into necessary.

Proof of behavior changes that justify the time and the cost of providing employees with financial education include an increase in deferrals, a decrease in the number of loans and hardship withdrawals, and improved asset allocations among participant accounts. In other words, knowledge must translate to action.

“Our research shows that a huge percentage– 92%, in fact –of employees who participate in retirement education make a major change to their retirement plans within 30 days of receiving the education,” Davidson says. The changes they make are those that make an employer feel great about providing it, she says: They increase their retirement savings, reallocate their assets to a more appropriate mix considering their time horizon and their goals, and open an outside retirement savings account, like a Roth or a traditional IRA.

Education should not be a onetime event, Davidson continues. “It is a process. Similar to the way you wouldn’t expect that working out one time would make you physically fit, financial education needs to be on-going. Successful workplace financial education is designed around comprehensive programs rather than singular events.”

Financial Finesse’s research shows that the more interactions a participant has with financial education, the more they tend to defer to the 401(k) plan. The increase, in fact, is nearly double–employees who have one interaction with the company’s financial wellness program defer an average of 5.77%, compared to employees who experience five or more interactions with the program and are now deferring 11.00% of pay.

“Employers are coming to the realization that in order to impart meaningful behavioral change they need to design financial education around how employees make financial decisions. Financial wellness programs resonate with employees because they get a comprehensive framework AND the knowledge to implement it along with the resources and tools they need to make lasting changes.”