How Plan Sponsors Can Improve 401(k)/403(b) Participant Education Efforts

Two-thirds of American workers are not saving enough to retire comfortably, according to several studies. Most have access to retirement savings plans but fail to take full advantage of them. U.S. Census Bureau researchers announced in 2017 that about 80 percent of Americans have access to an employer-sponsored retirement savings plan. However, only 32 percent of workers participate. This alarming statistic illustrates why improving plan participation and education has become a top priority for plan sponsors.

Traditional methods of educating the workforce about the value of saving money for the future are not entirely sufficient. Some employees may ignore materials and content presented at meetings largely because they cannot relate to the topic or the manner in which it is delivered. Levels of understanding about investment concepts are not homogeneous. One approach does not work for everyone. So, efforts to improve education for those eligible to participate needs to reach out to them at their level through engaging, relevant and useful information that drives change.

Here are a few best practices for improving participant education efforts to drive plan participation.

Assess Employees’ Financial Concerns and Behaviors

Know your audience. Developing an effective educational program starts with an assessment of current investment behavior in the plan and asking employees about their financial concerns. Reportedly, nearly 30 percent of employers with successful financial education programs conduct an assessment initially to determine employees’ financial well-being and which financial topics need addressing.

Plan sponsors or employers should analyze actual investment behavior to identify areas of emphasis, e,g, employees not diversified or too diversified, heavily weighted in a single asset or asset class, not currently contributing, never enrolled, contributing below the match level and other pertinent criteria by income and age. In addition, survey employees or conduct focus groups to gauge what information is necessary to improve contribution levels and investment selections. Obtaining this data can help create a more effective program tailored to your employees’ actual educational needs.

Diversify Topics and Media to Personalize Education

Provide specific and applicable education. Retirement savings education traditionally relates the importance of starting early, concepts like compounding, why investing in different asset classes is important and other topics in a one-size-fits-all effort. Plan sponsors with more successful programs develop content that is disseminated to employees based on their age, income level and whether they appear to be on pace to meet retirement goals. This personalized approach resonates more with employees. So, aim to use customized topics for different segments of the workforce instead of issuing broad messages to everyone.

While it is beneficial to have general messaging about certain topics, such as fund differences and chasing returns, special segmented content that will apply to individuals should be developed. These can be more impactful and encourage plan participation. For example:

• Retirement readiness with the message tailored for different age milestones such as 30s, 40s, 50s and on.
• Specific just-in-time pieces, such as when an employee gets married or has a baby and the appropriate changes to make.
• The difference between contributing at the 6 percent savings rate versus 8 percent for different income levels.

Offer various ways to learn. Printed materials and information that employees can access online is great, but people learn in a variety of ways. Younger employees will likely expect audio and video content that is short and to-the-point, while others may prefer workshops, calculators and other media to help understand the concepts. Even an employer with a limited budget for financial education can develop content, like simple audio and video materials, that can be emailed or accessed online. Maintaining a variety of options gives the employee control of their learning experience, obtaining pertinent information when and how it is most relevant.

On-going Commitment

Newly eligible plan participants get a lot of information. However, participant education efforts are not a one-and-done effort. Programs in place for many years tend to be more successful. An International Foundation of Employee Benefit Plans survey showed it can take more than five years to see an impact. They found that 49 percent of the more successful participant education efforts had been in place for over 10 years. Likewise, it is important to continuously provide fresh content as learning is an on-going process.

Plan sponsors extend a lot of resources providing retirement savings benefits for employees, so it is crucial to spend the time and effort to make your benefits plan more effective at meeting employees’ future needs from the recipients’ perspectives and actions. Sponsors should survey employees periodically about their benefits and use the insight gathered to develop better plans. Sponsors should also consider bringing in an independent expert to help assess employee investment behavior and demographics, and then make recommendations on educational content and approaches.

We Can Help

PlanPILOT is an independent Registered Investment Advisor, not affiliated with any broker-dealer, asset manager, financial institution or recordkeeper. We help clients improve their retirement plan operations to ensure they are delivering the intended value for the costs and risks taken. Feel free to contact us if you would like to learn how PlanPILOT can help you.

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