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The 4 Critical Elements of a Successful 401k Plan Education Program

February 28
00:30 2012

(This article is part of a series of articles addressing education for 401k participants and trustees.)

The key to success for any 401k plan is disciplined execution, and the key to disciplined execution is education for both the employees and the plan sponsors. Unfortunately, education, despite its importance, often falls to a lower priority 487794_45065553_chemistry_stock_xchng_royalty_free_300status in the busy-ness of business and life. Worse, it can easily be misapplied by having the wrong people leading the effort. Indeed, in many cases, education is frequently left to the devices of vendors rather than the plan sponsor. Why? Simply because they haven’t taken the time to pinpoint the key components of a successful 401k plan education program. For that reason, we present the four critical elements right here.

In plans that permit employee directed investing, ensure education is:

  1. Consistent and Regular – This means the terminology used in all plan literature is consistent with the terminology used in the education program. If the plan’s education program talks about goals in terms of the modern investment objectives, then the plan’s web-site cannot continue to refer to the traditional investment objectives. (If you’re unfamiliar with the difference between the two, read “401k Plan Sponsors: Is Your Investment Policy Statement Still Using Outdated Language?, May 17, 2011.) Similarly, an education program should be a regularly event and scheduled at a convenient time for employees.
  2. Tied to Investment Policy Statement – An IPS that can’t be understandably articulated to employees through education is not worth its salt. Likewise, a well-drafted IPS that isn’t understandably articulated to employees through education is not worth its salt. The IPS drives the investment philosophy of the plan and should also provide a handy blueprint for a successful education program. (For those interested in learning more, read “How Should a 401k Plan Sponsor Construct an Appropriate Investment Policy Statement?, June 7, 2011.)
  3. Covers both Administration and Investments – Sure, the quarterback gets to do all the commercials, but he wouldn’t be where he is if it weren’t for his linemen. Similarly, everyone always wants to talk about investments, but the problems 401k plan participants face aren’t due to a lack of good long-term investments, they’re mainly due to inadequate savings. The mechanics of savings begins with understanding the administrative functions of the plan and carries through how participants determine their broad investment strategy.
  4. Customized to the Plan’s Employees – Many investment professionals once thought the need to understand plan demographics disappeared as we migrated from pension and traditional profit sharing plans to participant directed 401k plans. That can’t be farther from the truth. Not only do we need an array of investment options geared to people of different ages and different economic backgrounds, but the plan’s education program needs to address the different learning styles of the different generations.

Let’s focus on this last item for a moment. Organizational development scholar, Dr. Morris Massey says “People develop values and outlook based on their world and their experiences from birth to about age 10.” What does this mean for a 401k plan education program? It means, very roughly, each generation comes with a different value system and a different way of understanding things.

Take a look at just one example to understand the ramification when it comes to delivering a 401k education program that employees of different generations will embrace. We’ll use the example of communications. The oldest workers prefer to communicate using the phone. Those not quite as old may be more comfortable with e-mail. A younger still group forsakes e-mail and relies mostly on texting. The youngest generation has moved beyond texting and instead uses Skype, Twitter or Facebook to communicate with one another.

Now imagine how the different generations feel about saving, spending and investing. Think about the events that might have shaped their views. Those coming of age in the go-go 60’s or the Reagan Revolution of the 1980’s might treat stock investing differently than those whose first experience were the stagnant 70’s or the credit crisis of the last few years. Their willingness to invest for the long-term might be skewed by events of their youth.

Similarly, and this crosses the generations, different people respond differently to different investment styles. Some people like words and pictures. Others like numbers and formulae. Some people want to see a graph while (less often, at least according to behavioral research) others prefer tables.

Being able to speak to different styles and values in one program represents the greatest impediment to success for any 401k plan education program. While education might best be left to professional teachers, 401k plan sponsors might not find that a viable option. The four key elements presented here offer a few simple steps every plan sponsor can easily afford to take. The next articles in this series will offer more specific examples from real world situations.

Part I: The 4 Critical Elements of a Successful 401k Plan Education Program
Part II: The Primary Objective of a Succssful 401k Education Program
Part III: The Most Compelling Challenges in 401k Education
Part IV: Successful 401k Education Program – Does Yours Measure Up?

About Author

Christopher Carosa, CTFA

Christopher Carosa, CTFA


  1. Lynne McAuley
    Lynne McAuley March 02, 13:57

    I always enjoy reading your articles. I know that my investing acumen suffers because I came of age in the seventies

  2. Giovanny Ginter
    Giovanny Ginter April 24, 07:43

    Thanks again for the article.Much thanks again. Really Cool.

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