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Retirement Education Spurs Higher Savings Levels

Mounting evidence shows education can indeed help employees make better decisions to build retirement savings, including a recent survey by the TIAA-CREF Institute and North Carolina State University (NCSU).

Many companies offer financial education, but few measure whether the programs actually help employees secure their financial futures, particularly with regard to retirement savings. The reasons for sponsoring it are becoming more compelling, however. "Financial education is important, it's effective, and it can affect the well-being of your workers," asserted Robert Clark, professor of economics and business management at NCSU and one of the study's authors. Other advocates state the case more aggressively, cautioning that employees, particularly soon-to-retire Baby Boomers, may one day sue employers for failing to provide adequate financial education.

Clark and Madeleine d'Ambrosio, executive director of TIAA-CREF, surveyed participants of 60 financial education seminars. Most participants were employees of colleges and universities (TIAA-CREF's core clientele) and represented a diverse population not limited to faculty members. Seminars focused on how much money is needed in retirement, the mathematics of retirement saving and risk-return characteristics of investment options.

Participants were given three surveys. Survey One asked them to reveal their retirement goals, demographic and employment data, and current savings level. Participants then sat through a one-hour seminar covering subjects such as types of employer-sponsored saving plans, available investment options, how to set retirement goals, and how to save enough to meet those goals. Survey Two, administered at the end of the seminar, asked participants whether the educational experience had spurred them to change their retirement goals or savings behavior. Survey Three was sent three months later and asked what actions the participants actually took.

Respondents tended to have relatively high incomes and an average 15 years of experience with their current employer.

One-third of participants changed their retirement age goal, their income goal or both goals before leaving the seminar. Six percent changed both goals, and another 6% modified only their retirement age goal, while 22% altered only their income goal. In all cases, they were more likely to raise these goals. Ninety-one percent of respondents said they anticipated altering their saving behavior by increasing contributions to tax-deferred accounts, altering their investment allocations, or other means. Among respondents who initially set an income replacement goal of less than 65%, one-third revised that goal upward by an average 19%. Women were significantly more likely than men to raise their income goal or expected retirement age. Younger workers and those in secretarial and maintenance positions were similarly more responsive.

Three months later, however, not everyone who intended to change behavior actually did so. In Survey Two, 41% said they would open a supplemental retirement plan, but only 25% of the same respondents who also completed Survey Three actually established one. Likewise, 37% of respondents with pre-existing supplemental plans reported in Survey Two that they would increase future contributions, but just 42% of these respondents did so by Survey Three. (On the other hand, 30% of those who initially said they would not increase contributions actually did so.)

Participants who failed to fulfill their intention to increase retirement savings cited a variety of reasons, including paying off debts, having a lower-than-expected income and changing their minds. But over one-third admitted they had simply not taken the necessary steps to increase their savings.

"That we find significant numbers of people changing their retirement goals is an important finding that does show the seminars put on by TIAA-CREF were important and high-quality," said Clark, adding he thinks employers can do a better job helping employees follow through on good intentions. One way is to have benefit officers present at seminars, so that people can make changes immediately, or, perhaps to send the employees follow-up materials a few weeks later, Clark said.

Employers should also assess the impact of financial education, the researchers said. "There's an awful lot of educational materials' out there," d'Ambrosio said. "It's one thing to provide a whole lot of information." Employers should find out if the information is effective, she said.

"We know from research that participation rates go up with financial education, no doubt about it," said Thomas Garman, a researcher with Florida-based debt counselor InCharge Institute of America.