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5 Top Education Topics 401k Plan Sponsors Need To Ask About But Don’t

5 Top Education Topics 401k Plan Sponsors Need To Ask About But Don’t
July 02
00:03 2019

Earlier this year we profiled “401k Plan Sponsors Are Asking For These Employee Educational Topics,” (FiduciaryNews.com, April 9, 2019). This led some to ask, “What are some education topics 401k plan sponsors not asking about but should?” Here are the top 5:

#1: Financial Health Beyond the 401k Plan
Traditional 401k education programs emphasize the 401k plan. This makes sense. It’s the immediate issue and the one thing employees can generally act on right in the meeting. But, just as there’s life beyond the 9 to 5 desk, there’s financial life beyond the 401k plan. There are basic considerations that impact everyday living for all workers.

Showing plan participants how to navigate these fiscal waters will improve the quality of their current lives, let alone their retirement lives. For example, Ken Verzella, Head of Deployment, MassMutual Workplace Solutions, in Springfield, Massachusetts, says it’s important for employees to see “the connection between affordability (what can a participant afford to save today vs the ideal).” He’d also like to see education programs that “help participants prioritize important financial decisions.”

This is not a difficult workshop to ask for. “Beyond helping employees save money for retirement,” says Amy Ouellette, Director of Retirement Services for Betterment for Business in New York City, “certain 401k providers work to enhance employees’ entire financial picture and well-being. For starters, plan sponsors should ask for tools that take into account their employees specific needs and situations. The best saving options will differ among employees, so there is a need for personalization. Additionally, plan sponsors can look for tools that aggregate outside accounts. With all of employees’ outside accounts in one place, employees can understand the impact their 401k contributions are having on their overall financial picture and therefore, make goal-based, holistic financial decisions.”

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#2: The True Cost of Premature Withdrawal
The power of compounding only occurs when the investment is continuous. Anything that disrupts the continuity of retirement savings risks losing that power of compounding. Demonstrating this through blunt and even aggressive educational programs can help employees meet their retirement goals. Verzella would like these programs to show the importance of “avoiding tapping retirement savings for loans and withdrawals and the negative effect that can have on retirement readiness.”

Davey Quinn, SVP of Investment Management at United Income in Washington, D.C., offers an attractive and unique way of dealing with the dangers of premature withdrawal. He says, “Study after study has shown that 401k balances are regularly killed by early withdrawals. Sponsors need to educate their participants on why it’s a bad idea to use their 401k funds as emergency savings. IRAs can be more beneficial if you need a short-term loan for less than 60 days.”

Which brings us to our next “need to ask but doesn’t” category…

#3: Emergency Savings Plans
This is a classic financial planning trope and one that can be easily covered in our first category. Still, it’s important enough that it merits its own place on this list.

Emergency funds have long been cited as an important financial objective. They help reduce the risk of unexpected trouble and are fairly easy to establish. Devoting a specific session to this during an employee education meeting can reveal one way to create an emergency fund.

“Many plan sponsors lack awareness of payroll deducted IRAs as an option for emergency savings plans, often called ‘Sidecar IRAs’,” says Terry Dunne, Senior Vice President, Managing Director of Millennium Trust Company in Oak Brook, Illinois. “If a participant experiences an emergency, such as a family member becoming sick, they can use their Sidecar IRA funds to pay for expenses, while their 401k continues to accumulate and grow. More recordkeepers have been looking into this as a design element, so participants can have more flexibility.”

#4: How to Find Lost Participants
Here’s an education category that should pique the interest of plan sponsors – if only they knew well enough to notice it. It’s too easy for ex-employees to leave the firm without taking their money out of the company’s 401k plan. When those former workers disappear altogether, it puts a strain on the plan sponsor.

“The DOL has been noticing more and more missing participants with balances of $5,000 or less in plans,” says Dunne. “Third-party specialized search services can help plan sponsors locate missing participants much more efficiently than if they were to do it themselves. Also, when individuals reach 70½ years and cannot be located, plan sponsors can utilize these digital solutions to easily find these participants and allow them to take their distribution.”

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#5: Cybersecurity
If you haven’t been paying attention, this is a topic that’s been in the headlines recently. It’s a subject area that impacts both plan sponsors and plan participants. “Plan sponsors have become major targets for cyberattacks,” says Dunne, “but often don’t have the same level of cybersecurity as plan providers. Third party auditors can help plan sponsors apply a consistent set of standards to evaluate cybersecurity protocols.”

Plan participants might also want to be aware of this issue as it can have a direct bearing on their own safety. “Cybersecurity should be a top priority for sponsors as there is a tremendous amount of financial and personal data shared between the plan sponsor and recordkeeper,” says Mark Olsen, Managing Director at PlanPILOT in Chicago, Illinois. “A breach by a recordkeeper would have widespread impacts, including diminishing participants’ trust in their employer, uneasiness about investing, and putting participants in a position to get their identity stolen.”

There’s always something new under the sun, and that means there’s always educational topics 401k plan sponsors should be asking about but aren’t. Hopefully, this list will inspire more curiosity and lead to better informed employees.

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.

 

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Christopher Carosa, CTFA

Christopher Carosa, CTFA

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