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The short answer is yes, to an extent. Human Resources personnel are in a unique position to act as a conduit between employees, their wages, and their workplace opportunities and programs. They should assume that new employees have no idea how the offered programs and opportunities might strengthen their financial position in both the short and long terms.

This article is from the office of a busy Abington, PA bankruptcy attorney who wishes more workers were thoroughly advised of their financial opportunities by their employers’ HR department.

Does Your Employer Offer a Pension Plan?

If your firm offers employees the opportunity to contribute to a pension plan, it is vital that you thoroughly explain what contributing to the plan does for an employee. The average worker is remarkably unsophisticated financially and unaware of the power of contributing to their pension early and steadily over the years.

HR staff should consider counseling employees as to how pension contributions work, namely, that employees contribute with pre-tax funds and are taxed only on what they don’t contribute, placing them in a lower tax bracket and saving them money in income tax. Then, once they retire, they can access those funds and are taxed on withdrawals at their then-applicable tax bracket, which will be lower than when they were working.

Does Your Employer Offer Matching Pension Contributions?

If your employer matches employee contributions to a pension plan up to a certain limit, it is incumbent upon HR to inform employees of the consequences of failing to contribute at least that amount to their pension. If they do not, they are leaving free money on the table.

Does Your Firm Offer Group Life Insurance?

Young employees may not realize the importance of having life insurance. But if they have a family or are helping to support parents, a year or two of replacement income will come in very handy should something happen to them and their income stream interrupted.

Many employers offer group life insurance at no to negligible charge to employees. Every employee should be encouraged to enroll and name their dependents as beneficiaries.

Is an AD&D Rider Available?

If the type of group life insurance you administer includes an optional Accidental Death and Dismemberment rider at additional cost, be sure to inform employees as to what exactly an AD&D rider can do for them if they are injured or fall ill and cannot work. AD&D can also serve to enhance or multiply the death benefit should the employee die from injuries sustained in an accident.

Does Your Employer Offer Stock Options or Restricted Stock?

What are ESOs?

Many publicly-traded companies and companies about to go public offer employee stock options (ESOs) to some employees. Many employees have no clue what a stock option is.

HR staff must explain what ESOs are, how and when they can exercise them, and that profit depends not only upon the performance of your company but how bullish the market as a whole is.

ESOs are call options on a company's common stock granted to certain employees. Restrictions on the option provide a financial incentive to employees to align their goals with those of the firm’s shareholders. In other words, ESOs incentivize employees to consider what they can do to support and enhance the performance and success of the company because that in turn benefits them financially.

ESOs are issued at the same price at which the company's stock currently trades and are subject to a tiered vesting period, usually over several years. After the first year, an employee has the right to buy shares at the price at which the ESO initially issued, most times resulting in an immediate profit. Many times employers front the purchase price for the ESOs, making this a cashless translation for the employee.

This explanation is vastly simplified and HR must counsel employees who are offered ESOs about the various rules and restrictions that apply, including the expiration period and the tax implications of converting options to stock.

What About Restricted Stock?

In an alternative to ESOs, your employer may offer employees “restricted stock.” Restricted stock is a gift of shares that employees can gradually cash in with each passing year of employment. Restricted stock never expires, and once they are vested (the time limit passes for an employee to own them) an employee can turn them into cash or transfer them to their own brokerage account.

The fact of the matter is that young new employees and even lateral hires may not know all they need to know about how their pension works, the importance of insurance, and how to manage ESOs and restricted stock offerings. HR staff must not assume they do, and must thoroughly counsel all new hires as to their financial options with your firm.

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Veronica Baxter

Veronica Baxter is a legal assistant and blogger living and working in the great city of Philadelphia. She frequently works with David Offen, Esq., a busy bankruptcy lawyer in Abington, PA.

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