Click, whirr: Thinking ­critically about employee benefits

When I was five years old, I thought that by age 35 I would be done giving book reports. But, as in life, things change and perceptions shift. So, I am proud to offer my latest report on two great books and how they relate to thinking critically about employee benefits.

In Robert Cialdini’s seminal book “Influence: Science and Practice,” he writes about how people persuade others to make decisions.

The flip side is how we, the consuming public, are influenced. Dr. Cialdini warns us to beware of the “click, whirr” response, in other words, making “automatic decisions” without thinking critically.

By contrast, Frank Luntz’s book “Words That Work: It’s Not What You Say, It’s What People Hear” is an example of how thoughtful words and phrases can completely reframe “hot topics” in today’s debating society.
 Dr. Luntz is a political strategist, credited with creating the terms “climate change” (instead of “global warming”) and “death tax” (instead of “estate tax”). The mere shift of two powerful words changed how the public analyzes these issues.

The takeaway from these two books is that we must have “ever-present conscious awareness” of who we are and the words we choose to use; doing so is also a safeguard against click, whirr responses.

Consider the term “employee benefits.” Synonyms for benefits include “assistance,” “payback,” and “profit.” Employee benefits are certainly valuable, but that doesn’t negate the need to think critically about how to identify and utilize them.

Moral of the story: there is no one-size-fits-all! Let’s take a look at two different types of employee benefits routinely offered by employers, and let’s look at each benefit (while grateful that they’re offered) using a more critical eye.

—————

Group life insurance: Will it work as planned?

A company may provide 1-2 times salary in life insurance, with the ability to purchase additional coverage. For younger employees, the insurance is so cheap that it makes sense to buy more.

As a hypothetical example, because each plan can be different, let’s say that a 30-year-old can purchase an additional $1 million of supplemental group life insurance through their employer for $800 per year (who wouldn’t do that?).

The contract stipulates that every five years the premiums increase, until a 65-year-old pays $10,000 for the same $1 million in coverage.

Over that span, the employee paid roughly $150,000 in premiums and didn’t get $1 in return because their contract wasn’t portable.

The only way the group policy pays out is if the employee dies prematurely. Still, the peace of mind may have been worth $150,000, but is that automatically the best decision?

—————

401k contributions: Too much of a good thing?

Take another example: maximizing 401k contributions. One of my client’s employers automatically increases her contributions annually, unless she actively opts out.

I’m sure the program is well-intentioned to help people save for retirement, but it can’t possibly be the best decision for every single employee.

These automatic increases might not be ideal for the employee who has insufficient cash in the bank, wants to buy a house, send kids to college, or start a business. And it also might not work if the employee’s tax rate increased, if this was her only savings vehicle, or if she lost her job.

—————

Everyone is unique so think critically!

If I can provide one ultimate takeaway from my columns it’s the importance of thinking critically about financial decisions. Each individual has a unique background and experience with money, present position, and goals.

Employee benefits play a significant role in the overall strategy. That’s why I help my clients first understand their benefits, then determine how to get the most out of them.

So, unless you want your HR Director to also be your financial planner, be sure to think critically!

—————

Kyle Zwiren, J.D. works with Financial Architects, Inc., an independently-owned company located in Farmington Hills. Kyle and his team serve attorneys and other professionals to help them design financial plans in line with their goals and based on optimal efficiency. Kyle practiced law prior to becoming a Financial Architect and left the practice to follow his passion. He is a Registered Representative of and offers securities through The O.N. Equity Sales Company, Member FINRA/SIPC. Investment Advisory Services offered through O.N. Investment Management Company. Financial Architects, Inc. is not a subsidiary or affiliate of The O.N. Equity Sales Company or O.N. Investment Management Company.
Want to talk to Kyle about this or other topics featured in The Economic Blueprint? Please email him at kzwiren@financialarch.com or call him at 248-482-3622.