Why Plan Participant Education is Essential

Plan sponsors have a responsibility to participants to make retirement plan offerings cost-effective, accessible, easy to understand, and risk managed. Their clearest goal is simple: help to ensure participants are prepared for retirement. Unfortunately, that has proven easier said than done. An alarming body of research by the Employee Benefit Research Institute suggests that many employees are not likely to arrive at retirement age in a secure financial position. Similarly, well over half of all participants in a recent survey failed a basic 401(k) quiz, and an almost equal number reported lack of confidence in their ability to choose investments. These figures are symptoms of a larger issue: financial ignorance. Plan participants often lack a solid understanding of what drives the success of their retirement savings, and increasingly, their unawareness is leaving them unprepared to leave work. Implementing plan participant education is key.

Plan sponsors hold the key to addressing this issue at scale. Participant education is a crucial component of accountable sponsorship. Only through educated engagement with their retirement plans can participants maximize the value they derive from participating in an employer-sponsored retirement savings plan. In turn, this success boosts employee confidence and increases the value of the plan as a recruiting and retention tool. Here’s how to begin a consistent, effective program of participant education:

1. Identify Areas of Need

There are many topics surrounding retirement planning that play major roles in determining eventual success, but the most important one involves teaching participants to gauge their own level of financial readiness. Up to 61 percent of Americans can’t properly estimate how much money they will need to retire. Almost half report not having a plan at all, and 68 percent of plan participants know that they aren’t putting enough away but aren’t able to come up with a good notion of what enough looks like on a monthly or yearly basis.

Teaching participants how to weigh their own situation is the most important step to making a 401(k) or 403(b) work for them. This knowledge provides a fiscal roadmap that can inform other life decisions. The high-level grasp of healthy financial goals, once attained, will bleed over into all aspects of life and make participants less likely to shirk their responsibility to retirement planning.

Additionally, certain basic concepts in personal finance can serve retirement investors well with minimal training. The idea of dollar cost averaging, for instance, is one that’s easy to explain – and one that could pay big dividends (literally) down the road. Other retirement terms and strategies such as asset allocation, risk profile, diversification, compound annual growth and dividend reinvestment should also be covered one at a time. A brief presentation can be enough to bring recognition to the power of these investment adages. A surprisingly gentle nudge on the part of a plan sponsor can be enough to lift participants to financial autonomy, provided that nudge is both persistent and relevant.

2. Outline Ongoing, Systematic Educational Techniques

Determining how to actually provide education is another question entirely. Most organizations make some amount of literature on their retirement offerings available to participants while others elect to hire advisors who conduct regular employee education sessions. Some, of course, have no system at all.

The best option is usually some combination of techniques. It’s crucial to have passive resources (both digital and print) for participants to access on their own time. Still, however, live sessions have been demonstrated to be the most effective in driving engagement. They represent an opportunity to connect with the educational content through real-time questions that other techniques miss. Holding physical educational events such as lunch-and-learns at regular intervals can push participants to take ownership of their retirement planning.

3. Follow Up Individually

There’s no substitute for individual attention. Each employee has a different set of needs based on criteria, spanning everything from age and income to family situation and health. Providing individualized advice, for that reason, is an excellent step to take. Third-party assistance can be a logical choice to provide this service. It’s important, however, to ensure that any fiduciary responsibility implied by bringing such a person on is met. Sit in on several sessions to ensure that you feel that what your employees are being told is both useful and honest.

Start Educating

Today, the Employee Retirement Income Security Act (ERISA) doesn’t mandate that plan sponsors concern themselves with participant education at all. Failure to provide it doesn’t constitute a breach of fiduciary obligation. However, the reasons for providing participant education are clear. A number of research shows employees are failing to take adequate advantage of their retirement plan options. That trend defeats the purpose of offering them in the first place. If your organization is willing to invest in providing the plan, make the investment in making it work for participants.

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 learn more about how we’ve helped companies develop a system that works for them – and delivers results for their employees.

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