To address this requires employers to do more than having a periodic “employee education” meeting. While these can help (see the previous article), more need to be done. Plan sponsors need to consider how they (and, more importantly, their service providers) deliver messages to plan participants.
Basic Members
Not only does the typical plan sponsor not have investing in employee education as a high priority, but they also likely don’t have the wherewithal to monitor the consistency of how the provider runs the education program.
It’s clear that 401k plan sponsors ought to educate themselves when it comes to managing their investment provider relationship. This is the broadest fiduciary liability risk area. If plan sponsors don’t pay close attention, they may find themselves gasping for air.
Nobody’s perfect. It’s unfair to expect recordkeepers to be. Everyone makes mistakes—even recordkeepers. The problem is what happens when a mistake occurs.
How do you solve, for example, the problem of integration between the payroll software and the 401k recordkeeper’s website?
“I was [once] a major skeptic of the use of annuities, I have subsequently changed my mind regarding the efficacy of low-cost fixed and variable annuities in both personal and retirement accounts.”
A few years ago, this might have been classified as a common “mistake.” Again, “mistake” is in quotes because this is less an issue for certain plans (usually small firms or particular industries) than others.
Common mistakes. Non-believing 401k plan sponsors. How many of these have you seen? What have you done to address the dilemma of what to do when the client isn’t always right?
But this rookie mistake doesn’t bypass veteran plan sponsors. If they’ve grown too complacent with their plan, they may wake up one day to find out they’ve got a dinosaur on their hands.
Among the tactics introduced by behavioral finance is the notion of “framing.” For individuals, however, it’s much easier to understand things if they are reframed into “buckets” representing specific individual goals.
