FiduciaryNews

Hosting an industry conference? Ask us about including it in this ticker?
What do you think of our site upgrade?

401k Plan Sponsors Are Asking For These Employee Educational Topics

401k Plan Sponsors Are Asking For These Employee Educational Topics
April 09
00:03 2019

There’s an ongoing debate if 401k plans should adopt an “Education Policy Statement” along the lines of the Investment Policy Statement. While the pros and cons of this make for a nice theoretical discussion, there are real and present needs when it comes to employee education.

Plan sponsors, too often overwhelmed by the day-to-day routine of running their company, find they must rely on the assistance of their service providers to implement and conduct the employee education program. Still, it’s not as if employers don’t know what their employees are asking for. “To ensure employees are preparing for a successful retirement, plan sponsors often look towards their 401k providers for more information on an array of topics,” says Amy Ouellette, Director of Retirement Services for Betterment for Business in New York City.

Who do you think is the most under-reported fiduciary issue? Click here to tell us when you complete the FiduciaryNews.com Winter 2019 Reader Survey because your answer will influence what articles we write.

We can break down these educational needs into two distinct camps. The first deals with the plan itself. This has been the area historically addressed virtually since the dawn of the 401k plan. The second category falls into what might be termed “generic financial literacy.” These are the traditionally financial planning subjects that people formerly obtained through either self-directed learning (mostly via reading books and magazines) or by engaging a financial planner.

Let’s take a look at what plan sponsors are asking for in each of these domains.

Benefit Plan Basics
The most basic of plan basics is the art of saving. This has eclipsed the art of investing in terms of importance (although not necessarily in terms of interest). The market collapse of 2008/2009 turned many heads away from investing topics. Instead, service providers began to focus on savings strategies.

Ken Verzella, Head of Deployment, MassMutual Workplace Solutions, in Springfield, Massachusetts, describes these training efforts as “finding money to save for retirement and making the most of those savings.” Teaching emphasizes everything from the traditional “power of compounding” and “tax savings” concepts to savings strategies involving multiple benefit plan vehicles.

More and more 401k plans offer both the long-standing tax-deferred option as well as the after-tax Roth option. Determining which path to take gives employees something they can control. As a result, investments have a reduced importance because that’s not something employees can control and therefore engages the employees less.

Of late, a third savings option has come into play by way of the health insurance side of the benefits department. Health Savings Accounts (“HSAs”) offer a creative way to save for retirement. While not universally available (because HSAs must be paired with a High Deductible Health Insurance Plan) nor universally attractive when available (because certain people may not benefit from high deductions), HSAs nonetheless are growing in popularity, especially among younger (and healthier) workers.

Verzella sees HSAs as “a vehicle to save for retirement health care spending.” Moreover, HSAs possess much more favorable tax treatment than traditional retirement savings vehicles. Explaining this, and how employees can array HSAs into their retirement savings strategy, has become a key component in some employee education programs.

“TODAY’S 401K EDUCATION MEETING PROCESS IS A FARCE.”

HEY! WHAT’S MY NUMBER? REVEALS A FOUR-STEP PROCESS THAT GIVES YOU A CLEAR, EASY-TO-UNDERSTAND ROAD MAP TO THAT COMFORTABLE RETIREMENT.

DO YOU SEE THE VALUE IN A 401K EDUCATION PROGRAM THAT CAN DO THIS? CLICK HERE RIGHT NOW AND BUY YOUR COPY OF HEY! WHAT’S MY NUMBER? TODAY!

This is not to disregard the investment process. After all, there have been significant changes to 401k plan investment options menus since the 2006 Pension Protect Act. “Target date funds are another popular topic,” says Davey Quinn, SVP of Investment Management at United Income in Washington, D.C. “Their huge rise in use in the last 10 years has participants bringing them up by name, and employers want to be prepared for that.”

Neil Lloyd, Head US DC & Financial Wellness Research for Mercer in Vancouver, Canada, sees teaching investment basics as a continuing need. He says, “You would be surprised how many HR/Benefit folks serve on committees and are asked to opine on financial topics for which they are not knowledgeable, but afraid to ask.”

The move away from defined benefit plans – where employees just passively obtained retirement benefits – to defined contribution plans has demanded employees take an active role in preparing for their retirement. “As pensions become less prevalent and organizations have shifted the liability for retirement savings to their participants, 401k plan sponsor committees are more often comprised of or led by Human Resources or Benefits employees,” says Michael E. Swann, Director, DC Strategy and Client Portfolio Manager at SEI Institutional Group in Oaks, Pennsylvania. “Committee members without a finance background are less likely to be specifically educated about how institutional investors approach investing. Education that would be helpful may include: investing basics, understanding investment vehicles, availability of different investment models and outsourcing, and how to judge investment results.”

Of late, there’s been a push towards the income side of investing. Quinn see a growing call for “Explainers on turning assets into income – with the rise in popularity of displaying retirement assets in terms of the income they will provide, plan sponsors are being peppered with questions about how these calculations are done. As well as what products can meet these needs – either investment products or platform solutions, like technology-driven wealth management.”

Beyond Benefit Plan Basics
A comfortable retirement begins with financial literacy. These basic financial planning concept have been rebranding by the term “financial wellness.” Addressing this may go a long way towards making happier and financially confident employees. “Employers have started to ask about increasing financial wellness in the workplace,” says Mark Olsen, Managing Director at PlanPILOT in Chicago, Illinois. “The American Psychological Association states that money is a top factor of stress. Sponsors have asked about implementing financial education to help employees manage their money and stress, and in turn, increase participation in the employer-sponsored retirement plan.”

While technically beyond the scope of the 401k plan, employees still need to grasp these core financial ideas. “Plan sponsors are interested in incorporating some type of financial wellness program to supplement their retirement savings program,” says Brett Trusty, Manager of Retirement Plan Services for Unified Trust Company in Lexington, Kentucky. Advisers may want to consider developing session’s on social security, income tax basics, estate planning basics and budgeting. Plan sponsors understand the needs of their employees, which includes other areas of their financial lives outside of just retirement savings.”

Verzella adds to this list. He includes “debt reduction, student loan repayment, emergency savings, and income protection.”

Quinn expands it further by adding “age-specific financial planning.” He says “it is very popular right now. People at different life stages have very different financial goals, and educational materials need to account for this.”

This education doesn’t have to be limited to basic notions. Lloyd, says it can show employees “how to determine and measure retirement readiness/financial wellness (e.g., balance as multiple of final pay, income replacement ratios, financial stress indicator).”

“I FOUND THE PROCESS HELPFUL, AND, AFTER GOING THROUGH IT, OUR EMPLOYEES NOW REALIZE THEIR FUTURE IS BRIGHTER THAN THEY THOUGHT.”

DISCOVER THE BEST WAY TO PREPARE FOR A COMFORTABLE RETIREMENT BY USING THE FREE HEY! WHAT’S MY NUMBER? RETIREMENT READINESS CALCULATOR.

THE LAST SECTION OF HEY! WHAT’S MY NUMBER? EXPLAINS WHAT YOUR CAN DO TO OBTAIN THE BEST GOAL-ORIENTED TARGET (“GOT”) YOU CAN!

WOULD YOU LIKE TO BE AMAZED TO SEE 401K PARTICIPANTS COME AWAY SMILING AFTER THEIR ONE-ON-ONE MEETINGS? CLICK HERE RIGHT NOW AND BUY YOUR COPY OF HEY! WHAT’S MY NUMBER? TODAY!

There’s no question 401k plan sponsors know they need to up their game when it comes to employee education programs. “According to a Forrester study conducted on behalf of Betterment, 80% of education programs on 401k offerings for employees are ineffective,” says Ouellette. “Plan sponsors today seek solutions to better engage employees. By enlisting a provider who offers a digital tool, it means employees have easier access to their holistic financial picture (aggregating their 401k with other accounts) and guided, personalized education right at their fingertips. This accessibility allows plan participants to better engage with their 401k, understand how they’re saving today and how it will impact retirement plans in the long run.”

Christopher Carosa is a keynote speaker, journalist, and the author of  401(k) Fiduciary SolutionsHey! What’s My Number? How to Improve the Odds You Will Retire in Comfort, From Cradle to Retirement: The Child IRA, and several other books on innovative retirement solutions, practical business tips, and the history of the wonderful Western New York region. Follow him on TwitterFacebook, and LinkedIn.

Mr. Carosa is available for keynote speaking engagements, especially in venues located in the Northeast, MidAtantic and Midwestern regions of the United States and in the Toronto region of Canada.

About Author

Christopher Carosa, CTFA

Christopher Carosa, CTFA

1 Comment

Only registered users can comment. Login

FiduciaryNews.com is sponsored by…

Order Your 401k Fiduciary Solutions book today!

Vote in our Poll

Disclaimer

The materials at this web site are maintained for the sole purpose of providing general information about fiduciary law, tax accounting and investments and do not under any circumstances constitute legal, accounting or investment advice. You should not act or refrain from acting based on these materials without first obtaining the advice of an appropriate professional. Please carefully read the terms and conditions for using this site. This website contains links to third-party websites. We are not responsible for, and make no representations or endorsements with respect to, third-party websites, or with respect to any information, products or services that may be provided by or through such websites.