My colleague Blair Campbell wrote a brilliant piece (here) on the growing knowledge of the risks involved for organizations that sponsor a defined contribution pension plan. I also share the view that a tidal wave of litigation is coming for these organizations. Yet I feel the need to underscore a sense of urgency to this matter. I believe that the timing for this impending doom is linked to the upcoming retirement of the baby boomer generation, particularly the younger segment of this group currently in their fifties.
This particular group was the first to experience defined contribution pension plans for the majority of their careers. This is especially true for those that worked in the private sector. As their older coworkers accumulated years of service in defined benefit plans, counting down until they can break free of their golden hand-cuffs, younger boomers were left to be the sole caretakers of their retirement accounts, navigating the murky waters of recession, volatile markets, and changing policies to tax, investment, interest rate and borrowing. It is no wonder that overwhelming evidence points to the woefully inadequate retirement savings that this group has thus far managed to accumulate. (reference article here)
The solution for employers of baby boomers is to embrace and to champion comprehensive employee financial education. What I mean by comprehensive is that it is not simply focused on the particular features of their pension plan or on how to become a better investor. Rather, it is about all aspects of financial planning including cash management, debt, tax, government retirement benefits and estate planning. It is about empowering an individual with the knowledge to create a plan for their own optimal retirement outcome and to understand the far reaching implications for their actions or inaction. This is best done by engaging with third party providers that are skilled adult educators and who also preferably do not sell investment products, in order to eliminate potential conflict of interest.
There are countless benefits to organizations that embrace comprehensive employee financial education. Not only is it a demonstration of proper governance and prudent risk management against impending litigation, research indicates that there are measurable boosts to productivity. The U.S. based Personal Finance Employee Education Foundation site that the return on investment for organizations that offer comprehensive financial education is three to one! Imagine the overwhelming positive impact to our entire economy and our society as more organizations embrace this.
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