The Confident Participant: How To Create An Effective 401k Education Program
This is the second installment of a three-part series on participant education. The next installment will discuss plan design changes that can help make participants “retirement ready”.
By Carol Buckmann
According to a recent report by Fidelity Investments, college professors gave themselves a grade of “B” in financial literacy. If college professors are not completely confident in their understanding of financial concepts, imagine how daunting it is for the average plan participant! Understanding how a 401k plan works and selecting investments based on plan booklets, prospectuses, charts, glossaries of terms and the other information provided under ERISA disclosure regulations requires participants to make a real effort. Most don’t do it.
In Part One, I recommended that plan sponsors prepare their participants to invest for retirement by educating them. However, the blueprint for creating an education program doesn’t exist. Plan sponsors can hire seemingly qualified people to deliver an investment education program, but the quality of that content and delivery can vary substantially. In fact, many of these programs are not very good. Developing a program that will actively engage and educate your participants requires partnering with their educator to create a program tailored to your participants rather than uncritically accepting some off-the-shelf program.
When creating your program, keep the following in mind:
- Incentivize Attendance. Hold your sessions in an attractive location and serve lunch or snacks to encourage people to attend. Ask participants to bring their most recent account statements to the meeting.
- Have a Live Presenter. There is no substitute for the opportunity to hear a focused presentation and have questions answered by a live presenter. Computerized programs can be used to supplement live programs, but shouldn’t be the only source of participant education.
- Cover Basic Investment Concepts. Plan sponsors are sometimes puzzled by the number of participants who want to keep their accounts invested in stable value or money market funds. Participants need to understand diversification, risk, asset classes, which investments are in those classes, and how to find direct and indirect investment fees.
- Explain the Current Investment Menu Choices. Provide basic information using the latest fee and investment disclosure as a starting point. If there is a qualified default investment alternative, make sure that participants know how it works and whether any managed account options may be available.
- Use Interactive Materials. Questionnaires and worksheets can help establish a participant’s time horizon and risk tolerance.
- Use Powerful Visuals. They say a picture is worth a thousand words. It’s one thing to hear that retirement saving needs to begin when you’re young. It’s another to see a graph comparing accumulations of employees who start saving at different ages. Other examples can show the tax savings from participating in a 401k plan and how much annual income individual account balances can generate. It also helps to provide examples of the impact of fees on account balances over time and hypothetical asset allocation models.
- Ask Participants to Anonymously Evaluate the Presenter. Let participants tell you if the program is having an impact.
- Sit in On a Session. Does the presenter cover concepts in an understandable way? Is it a canned presentation, or does the presenter tailor it to the group and the questions being asked?
- Offer Different Sessions for Different Target Groups. Millennials and retirement age participants have different needs and preferences. Millennials may be happy getting information on their phones. Older employees may not be tech savvy, even today. But the big difference is that employees just starting their careers and pre-retirees have different needs and concerns. For example, a discussion on the benefits of making catchup contributions is relevant for employees age 50 and over, but won’t be of interest to millennials.
- Make Individual Consultations Available After the Session. This makes seeking advice easy, and can also provide immediate reinforcement of key points from the presentation. Consultations can offer general advice, such as a recommendation to diversify investments, or more personalized information. One-time advice has not been considered fiduciary advice in the past, but it will not be exempt under the Department of Labor’s Fiduciary Rule. However, regardless of what happens to the Fiduciary Rule, your adviser’s advice should not be conflicted or affect the adviser’s compensation.
- Develop an Education Policy Statement. To clarify the goals of your program and how you intend to reach them, create a written education policy.
- Supplement Education with Investment Advice. Education and ongoing advice programs are not mutually exclusive. They can supplement each other and, as indicated in Part One, there are fiduciary protections in place for eligible individual advice arrangements.
You invest a lot of time and money in creating your company’s retirement plan. Educating your employees about how to use it will help ensure they receive the benefits it was designed to provide.
Guest author Carol Buckmann is a partner at Cohen & Buckmann PC, and has practiced at major law firms specializing in the areas of employee benefits and executive compensation for over 30 years. She has worked extensively in all areas of employee benefits, including fiduciary advice, tax qualified and non-qualified plans, welfare plans, ESOPs, employee benefit issues in mergers and acquisitions, and ERISA issues arising in investment fund formation. Carol frequently blogs, writes articles and is quoted in the media about current employee benefit issues.
The views expressed in this article are those of the author and do not necessarily represent the views of PenChecks Trust, its subsidiaries or affiliates.