Are employers responsible for employees financial well being?
Larry vs SmithCo.
Larry was about to retire and realized that he was in big trouble. He worked for SmithCo for 16 years and was contributing to a defined contribution pension for 10 of those 16 years. In his first 6 years, he did not contribute to the plan because it was optional and he felt he was shafted because he was not aware of his option to join the pension plan.
To compound matters, Larry’s portfolio was invested in cash at very low-interest rates because he did not feel like he had enough investment knowledge to invest in the markets or the other riskier investment options. He felt like there was not enough education provided to employees about investing or about retirement planning.
Larry decided to sue his employer on the basis they were partly responsible for his inability to retire. Although the employer had a pension plan that allowed matching there was no communication or education to the employees about their options and how to use the plan.
Do you think Larry has a case?
This example is fictitious. Neither Larry or SmithCo exist. In Canada, there have been no lawsuits of this kind. The question is will there be lawsuits like this in the future and will the Larry’s of the world have a case?
The truth remains that nobody knows. As it stands today, there are no laws requiring employers to provide any level of financial education or employer-sponsored retirement plans. That being said, the Task Force on Financial Literacy was set up by the government to address the lack of formal financial literacy and education programs in the market place.
In their final report, they made 30 recommendations. The one that is most relevant to employers is recommendation #6:
“The Task Force recommends that employers incorporate financial literacy training into their current workplace training programs and communications. To that end, the Government of Canada, as well as provincial and territorial governments, should make workplace financial literacy programs eligible for tax assistance. Governments should demonstrate leadership as employers by developing workplace financial literacy programs for employees throughout their careers.”
Obviously, I fully support this initiative because I have been implementing financial education programs in the workplace. Click here to read the executive summary of the final recommendations.
Although there are no laws forcing employers to provide financial education or employer-sponsored plans, there are guidelines for employers to provide a minimum level of education for Capital Accumulation Programs. Right now these are just guidelines. These guidelines serve to protect both the employer and the employee from a Larry vs SmithCo from every happening.
One day a case like Larry vs SmithCo may arise. Companies that take a proactive stance at helping their employees with personal finance, investing and retirement will not only avoid lawsuits like this but also look more favorably as an employer that cares about their financial well being.
The financial stress of employees can be toxic to the productivity and morale of a company. Financial education not only has advantages to attracting, rewarding and retaining employees but also to create an environment that is more productive, profitable and conducive to business. Some leading-edge employers are already implementing financial education programs as part of not only their Group Retirement Program but as part of a holistic approach to health and wellness benefits.