Sponsors know too well that a lot of planning and consideration goes into the design and maintenance of a retirement plan. But much of that hard work is futile without employee participation. Most employees understand the benefit of saving for retirement, and many are willing to invest funds in their employer’s program. However, they may lack basic understanding of how retirement plans work and may not be confident in selecting investment options on their own. Employees need to understand the benefits of the plan and how to use it in order to recognize its value. A robust employee education program can play a significant role in improving plan participation rates and will reinforce the value of the plan to employees.
For participants, an education program can help address many concerns, such as:
- How much they need to put away to achieve their retirement goals
- Choosing the best asset allocation for their plan
- Long-term financial decision making
- Financial well-being and retirement readiness
For plan sponsors, a successful education program can improve:
- Employee satisfaction and retention
- Visibility and appreciation of the plan
- Attraction for potential employees
How to Develop a Successful Plan Education Program
Follow these guidelines to ensure an effective and successful education program, and in turn, drive participation rates.
Cover Basic Investment Concepts
Not all participants are financially informed. The average participant may not understand certain concepts such as asset allocation, risk profile, diversification, compound annual growth and dividend reinvestment. Plan sponsors should conduct sessions focused on specific financial concepts presented in easy to understand messaging to ensure participants are educated when making investment choices. Likewise, sponsors need to explain the investment menu. It is not uncommon for plans to have over 20 investment options along with the choice of target date funds, balanced funds, or annuities. Due to the complexity of these investment choices, participants often need communication to help them make informed choices.
Address Possible Misconceptions
Employees have a long list of misconceptions when it comes to retirement plans, such as stopping contributions when the market is down, only investing up to the company match, or the pros and cons of Roth after-tax contributions. These misconceptions can prevent employees from participating or hinder a participant’s progress. It is also vital to address the loan and withdrawal process, what features the plan has built in, and any penalties or withdrawal fees when you remove money outside of the plan parameters. It is critical to address and dispel these misconceptions by communicating the best practices to follow when investing in the plan.
Emphasize Financial Wellness
Many employees see a retirement plan as simply a savings plan and don’t realize that it is a critical part of enjoying financial wellness during their retirement. In addition, as Millennials enter the workforce, many don’t prioritize saving for retirement and hesitate to part with their money now. Participants need to understand how much they should try to achieve to be retirement ready. By taking a financial wellness approach to education, sponsors can help employees learn about budgeting, both now and during retirement, work on debt reduction, and show them not only how they can fit the contribution into their budget, but how it will give them peace of mind in the future.
Encourage Attendance
Allow others to attend sessions. Employees may not be the primary financial decision-maker in their home. In addition, English may not be their first language. They may want to bring someone who better understands financial concepts. By allowing others to join, participants will have a higher chance of attending and learning about the plan. It is equally important to ensure that a member from your plan’s committee attends each session to address any questions or concerns employees may have. Another way to encourage attendance is holding educational sessions at convenient locations and times, and serving lunch or snacks as an incentive.
Commit to Education
Through focused and persistent education efforts, employees are empowered to take charge and achieve their desired retirement goals. A successful plan education program should leave employees confident about the plan and their retirement goals. If employees would like more information, be sure to offer one-on-one sessions so they can have all of the information they need to make their decision. By equipping employees with the necessary information, they will feel more confident and likely to want to participate.
If you’re ready to make participant education a priority but aren’t quite sure how to act, consider enlisting the help of a retirement plan consultant. Contact PlanPILOT today to discuss how to develop an education program that will work drive your employee participation.
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Who is a Fiduciary? Plan sponsors need to carefully identify who its plan fiduciaries are and make sure those fiduciaries are aware of their role and properly trained. |
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