What makes a 401(k) plan successful?

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“To play a wrong note is insignificant; to play without passion is inexcusable.” -Ludwig von Beethoven

In my previous post  Everything I know about Financial Advice, I learned from Music, I provided a framework to more effectively communicate financial concepts using the guitar as a metaphor for one’s financial life.

In this post, I would like to talk about a 401(k). The retirement savings plan offered by business owners to their employees.

I attended a financial webinar today. 1,000 financial advisors listened to a 401(K) expert discuss  some of the challenges employers and employees face when it comes to evaluating the success of their 401(k). It seems that there is a disagreement between what makes a 401(k) plan “successful”. For example, is success limited to the number of employees who  participate? Or to what extent  the employer matches the employee’s contribution? Or how regularly  employees are contributing to their 401(k)? All of these factors have a role in the success and all are important. But there is one obvious item missing. How many employees can articulate what their vision is for retirement, and how many are on track to successfully retire? Is the companies current provider having these conversations with their employees? Are they helping the employees organize their financial life or just printing out generic financial plans.

Ask a typical plan sponsor this question and you are likely to get the “I have no clue” response.  Yet this issue ought to be critically important to the employer. According to an American Psychological Association survey, 73% of Americans named money as the primary affecter of their stress levels. If I’m a business owner, I’m depending on my employees. Do I want them preoccupied with their personal finances, or do I want them to be focused on my company? The answer is obvious.

It is important to distinguish value between providing a financial site with 100 web pages filled with calculators, future value tools and tables and an informed, caring financial professional having an authentic conversation with the employees. The numbers are only part of the story. It’s like showing someone the written score of Beethoven’s 5th symphony and saying this is the music- without listening to it. The quality of our decisions, depends on the quality of our conversation. Who is having these conversations with employees? How can the employees learn to find their own voice?  What fuels the conversation? Passion.

I find it odd why the financial industry is so surprised that so few employees take the time to understand the significance of long-term saving. The industry continues to put more forms, more numbers, more tables in front of employees. This is not how financial decisions are made.  Financial decisions are predominately behavior. According to Robert J. Shiller, “the aggregate stock market in the United States in the last century has been driven primarily by psychology and fads, that it has shown massive excessive volatility.” 1 As Warren Buffet said- ” It won’t be the economy that will do in investors; It will be investors themselves.”

The goal for the student of guitar is to find her unique voice, fueled by her passion and bring it to the instrument.

The goal for the seeker of financial harmony is to find his unique voice, fueled by his passion and connect it to his financial life.

I’m an old fashioned financial advisor. To me, it begins with a values-based conversation about what really matters in the life of the employees and making sure they can align their personal values with their financial decisions.  Only then does one become a virtuoso over their financial life. This way the employer gets what she wants, happy and productive employees, and the employee gets what he wants, living with passion, instead of financial fear.

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1- Robert J. Shiller, The New Financial Order: Risk in the 21st Century, Princeton University Press, 2003

 

Written by Jaimie Blackman

Jaimie Blackman

Jaimie Blackman — a former music educator & retailer— is a Certified Wealth Strategist & Succession Planner. Jaimie helps business owners maximize the value of their company through education & coaching. He is a frequent speaker at the National Association of Music Merchants, (NAMM) Idea Center and has spoken at Yamaha’s succession advantage.

As a financial literacy educator he has taught at New York University and has lectured at the 92nd Street Y, Marymount Manhattan College and CUNY.

His column is published in The Music & Sound Retailer and contributes to NAMM U online, as well as other industry trade magazines.

Jaimie is CEO of Jaimie Blackman & Company, President of BH Wealth Management, and Creator of MoneyCapsules® and the Sound of Money®.

To register for Jaimie’s live webinars, or to subscribe to his podcasts, visit jaimieblackman.com.

The purpose of this post is to educate. Our content should not be construed as advice. If legal, tax or other advice is required by the readers, professional advice should be sought.

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