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The Primary Objective of a Successful 401k Education Program

February 29
01:13 2012

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

Julius Caesar once said “Experience is the teacher of all things.” The irony for 401k investors, however, lies in the truth that experience only comes with age, and successful retirement investment requires time. Learning the power of compounding 1141394_55138636_50mm_lens_stock_xchng_royalty_free_300at age 60 does little to help. Investors must learn this secret of success in their 20’s or 30’s. One simple salacious strategy sums it up: Savings.

“A 401k is first and foremost a SAVINGS tool… you save before you spend,” says Chuck Miller, a consultant in financial services communications from the greater Chicago area. “The more time you spend on finding ways to create an education program that emphasizes how participants can save more,” he says, “will help more than all the investment education you may impart.”

We’ve seen the fruits of disciplined savings in our earlier article “Plan Sponsors Smile: Hooray for the 401k!” (, November 22, 2011), which detailed how ordinary workers became millionaires merely by consistently saving in their companies’ 401k plans. They started saving early and contributed often. They have proved to an often cynical world the 401k plan can go beyond its original intent to merely supplement other retirement income sources. For these people, their 401k assets have grown large enough to become the primary vehicle to sustain them during retirement.

These investors had the same advantage as all employees with 401k plans. The difference is they seized this opportunity with a vengeance while their co-working brethren did not. The primary objective of all 401k education programs should be to produce workers who reach retirement with the assets they need.

A successful education program, therefore, presents through a clear process the instructions employees must follow to successfully retire. Any program will address both administrative and investment issues. It’s important this program is tailored based on the plan’s Investment Policy Statement as well as the demographics specific to the company. Remember, the style of teaching is potentially different for different generations.

But all these factors must act as individual lenses, each focused on one thing: Savings. Let’s see how this works in the three typical types of education programs developed by every 401k plan.

Trustee Education – This program is designed specifically for the plan sponsor and the plan’s designated trustees. It should be taught by an expert or experts in both regulatory issues and behavioral finance. The administrative side of this education program should focus on how the regulatory framework can be used to do two things: increase plan participation among employees and maximize their contributions. The investment side of this education program should focus primarily on how to incorporate behavioral finance techniques in the plan design (including the Investment Policy Statement) to encourage more employees to participate and to encourage employees to maximize their contribution rate.

New Entrant Orientation Education – This program is designed specifically for new or newly eligible employees. It should be taught by an experienced teacher – not just an entertaining presentation artist. The teacher needs to know how to respond to different learners in different situations, but also be very patient as these students will probably know little to nothing about personal finance. The administration side of this education program concentrates on explaining to the new entrant which people (both internal employees and outside vendors) offer which plan services. For example, the employee will need to know who to contact in the Human Resources for certain specific questions and who to contact at the recordkeeper for other specific questions. The investment side of this education program, although speaking to long-term investing in a general way, should emphasize how to determine retirement needs and the best savings strategies.

Ongoing Education – This program, more likely a series of seminars, is designed specifically for veteran employees who have been participating in the plan for some time. It should, like the New Entrant Education Program, be taught by a teacher. Because these students should have more experience with personal finance matters, this teacher should be capable of extending the lesson to a more advanced stage. The administrative side of this education program should go beyond the identification of the personnel involved in the 401k plan service. Instead, it should highlight how employees can independently use available systems (including web-based systems) to increase their deferral rates. The investment side of this education program should concentrate on updating the employee’s retirement needs and improving their savings strategy. Advanced sessions can also begin to reveal how behavioral finance studies can be used to help them avoid making common investment mistakes.

While it’s easy to isolate an objective, the real world can present challenges. We will address these in our next installment.

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

About Author

Christopher Carosa, CTFA

Christopher Carosa, CTFA


  1. Jonathan Leidy
    Jonathan Leidy February 29, 09:18

    Very true, Chris. I would add that even more effective than education alone is the supplement of one-on-one ADVICE sessions with participants. That’s where the rubber truly meets the proverbial road… to retirement, of course.

    Also, have you seen the new Managed DC platform from DFA/ASPire? It uses DB-style calcs to help participants save more effectively. Nascent, but pretty cool.

  2. Christopher Carosa, CTFA
    Christopher Carosa, CTFA Author February 29, 10:12

    Jonathan – Not aware of this product. However, I developed something more than 10 years ago that I’m pulling out of the attic in hopes to share it with FiduciaryNews readers at some point.

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