The Ideal Plan using automated features like auto-enrollment, auto -escalation and target date funds (TDFs) has dramatically improved outcomes for defined contribution (DC) plan participants but plan sponsors should not stop there. And beyond typical and linear employee education is what is known as financial wellness. But what does it really mean and why is it important?
T Rowe Price has been a leader in the DC market as a record keeper money manager and especially as a top TDF provider. But they have turned their focus on financial wellness as they realize that making all the right services available at a reasonable cost combined with implementing auto features does not get employees where they ultimately need to go. While traditional employee education for DC plan participants has focused on understanding investments and how to create a portfolio, research shows that this linear education where one size fits all is less than successful.
Financial wellness, according to Patrick Delaney, VP Marketing at T Rowe Price, encompasses a more holistic approach which includes, “The ability of people to manage their daily household finances while maintaining sort and long term savings goals. People need to adopt and maintain these habits.” While the Ideal Plan has done a great job helping people to participate in their employer’s DC plan, save more and be better diversified, only half of all plans are using it, according to Delaney, and we still need to try to engage people.
Why should employers care about financial wellness and what does it have to do with their retirement plan? It’s simple logic that people not stressed about finances will be more productive at work and less likely to seek a new job just to increase wages. A company’s DC plan is a wonderful way to begin a dialogue about financial wellness which may start with retirement and simple education at enrollment meetings, but should continue with a holistic approach in partnership with enlightened advisors and focused DC providers like T Rowe Price.
