Saving, Investing, Budgeting: How Plan Design Can Help Junior-Level Employees Thrive

This is the third and final article in a series dedicated to the benefits of designing your workplace financial wellness, retirement solutions and equity compensation based on where employees are in their lives. This piece focuses on how to customize plans for the unique financial needs of junior-level employees.

Financial stress finds employees across the income spectrum. An executive may be trying to balance a portfolio and stay compliant; a middle manager may be crunching numbers to try to keep saving while making a house payment and preparing to put a child in college; and a junior-level team member with student debt may be trying to save money for the first time and feeling like it’s cramping their style and their newly activated spending power.

Too often, companies take an umbrella approach to financial wellness, retirement planning and equity compensation. “Your company needs a provider who can speak to each level of employee,” says Tom Conlon, Head of Retirement Sales, Morgan Stanley at Work. “For employees just starting out, the conversation can be about how to take advantage of the company match for retirement savings. For middle managers, it might be about the difference between pretax contributions and Roth 401(k)s, and what the best way to max out is. And then for executives, there should be a discussion about how to maximize deferred compensation programs and understand taxation of such programs."

The best way to ensure that these different conversations are encouraged and fully supported is to think more strategically about plan design and take a tailored approach to employees’ financial lives. Organizations too often miss the opportunity to design workplace financial wellness, retirement and equity compensation plans that truly engage the different segments of employees.

This matters, because companies are continually in a battle for top talent. Those who can offer a complete package of financial benefits that are carefully customized, vetted and curated for what individual employees need will have a major competitive advantage. “How wonderful to be able to tell all of your employees: This onsite seminar and this virtual financial advisor have been tailored specifically for you. We understand the areas where you have questions or need guidance, and we want to help you make the most of your benefits,” says Dee Crosby, VP of Shareworks by Morgan Stanley.

Being able to offer help at every level, from recent college grads to veteran executives, communicates to employees that you will be with them each step of the way. Starting these important financial conversations early is key to empowering the next generation of employees.

Junior-Level Employees: Their Financial Challenges and Opportunities

Today’s junior-level employees—employees in the first decade of their career—are more likely than previous generations to have a large amount of student loan debt, and to feel anxiety, and even remorse, about it. According to a 2019 FINRA survey of 27,000 Americans1, among those with student loans, almost half (47%) said they wished they’d chosen a less expensive college. A nearly equal percentage (48%) is worried they won’t be able to pay off their loans. Many report they didn’t fully understand the long-term ramifications of such a loan.

These younger employees realize they need to pay down the debt, but they also want to save for milestones like getting married or buying a home. While they may have heard something about the importance of saving for retirement, they are probably living paycheck-to-paycheck and trying to budget for the first time. Saving for an event 40 or more years away seems like a low priority—especially since they are eager to spend money on things like vacations and socializing with friends.

Add to all of this that they are likely to have a lower degree of financial literacy. In fact, only 34% of FINRA survey respondents were able to answer four of five basic financial literacy questions about mortgages, interest rates, inflation and risk, down from 42% in 2009—a drop researchers saw most prominently among people ages 18 – 34.2 “There’s a huge gap in the curriculum in high school and college,” Conlon says. “It’s likely that no one has taught these younger employees how to budget, how to save to meet specific goals, or how to appropriately manage debt."

Plan Design for Junior-Level Employees: Big on Incentives, Education, and Habit-Building

While this group faces significant financial challenges, they are also a captive audience for financial wellness and financial advising. This means plan sponsors have the opportunity to teach, incentivize, and help them lock in good financial habits they can build upon for the rest of their careers and into retirement.

  • Encourage starting 401(k) contribution at 8%: “We know from our data that we need to be doubling the typical 4% of salary recommendation for those just enrolling in a retirement plan,” Conlon says. “Encourage employees to start with 8%, with 1% bumps each year, until they get to 15%.” That builds the habit of paying yourself first. Don’t assume these employees understand anything about vesting and employer matches. Showing them in real numbers and real examples how this works will make more of an impact than financial jargon and hyperbole.
  • Reinforce retirement savings as long-term savings: If your plan offers a feature that allows employees to take out money from their 401(k) as a general purpose loan, discourage it, Conlon says. “It negates the fundamental purpose of long-term retirement savings,” he says. Companies offer it to be helpful to employees who need quick cash, but it often winds up harming them in the long run. Instead, review any other emergency savings components your plan offers or help employees create a personalized short-term savings plan.
  • Educate about target funds: Younger employees in particular can benefit from Target Date Funds. “It’s a cost-effective way to have good asset allocation without having to worry about the complexities of investment,” Conlon says. These funds are ideal for employees who don’t have significant account balances, are newer to investing, and are unfamiliar with capital markets and how to adjust their portfolios. Participants simply decide on the approximate year they would like to retire and the fund automatically allocates their money across asset classes, and de-risks the portfolio with age.
  • Teach key financial concepts as part of onboarding: Many junior-level employees have never attended an onsite financial seminar or virtual webinar, and have never worked with a financial advisor, says Laura Assomull, Head of Financial Wellness Business Development, Morgan Stanley at Work. Some basic coaching around fundamental concepts like compounding interest, vesting, diversifying your investments, pros and cons of pretax versus after-tax savings, and how inflation erodes purchasing power can help employees make smarter financial decisions. “Employees need access to this kind of education, and then they need to be able to act on it in an easy way, with everything in one place, accessible in multiple ways,” Assomull says.
  • Consider the value of an ESPP: “An ESPP is a way for entry-level people to participate in the growth of the company. It might be the first time they actually buy stock,” Crosby says. “An ESPP can be a good tool for saving for vacation, a wedding or another goal if employees buy it and then cash out the stock.” Employees participating in an ESPP are often able to buy stock at the lowest price during the offering period, plus enjoy a discount, which is a great deal. “It can complement 401(k) savings,” Crosby says. Make sure a financial advisor walks them through their financial priorities, and the benefits of equity compensation along with advice from a tax professional on the tax implications. Understanding how equity works will serve them well as they grow in their careers, and eventually have more equity compensation options.

Working with a financial advisor and benefits provider who can offer uniquely segmented approaches across retirement solutions, financial wellness and equity compensation plans can mean more educated and knowledgeable junior team members. It also creates a robust, flexible benefits program that can help both your organization and your employees thrive.

Morgan Stanley at Work meets companies and individuals wherever they are on their journey of wealth creation. With an end-to-end approach to workplace financial solutions, we provide a unique combination of thoughtful education, insightful advice and leading technology.

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1 June 20, 2019. FINRA survey:
2 June 20, 2019. FINRA survey:

Investments in target-date funds are subject to the risks associated with their underlying funds. The year in the fund name refers to the approximate year (the target date) when an investor in the fund would retire and leave the workforce. The fund will gradually shift its emphasis from more aggressive investments to more conservative ones based on its target date. An investment in a target date fund is not guaranteed at any time, including or after the target date. These funds are based on an estimated retirement age of approximately 65. Should you choose to retire significantly earlier or later, you may want to consider a fund with an asset allocation more appropriate to your particular situation.

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