401(k) Education Strategies for Any Economy

In this opinion column, a 401(k) plan adviser outlines key considerations to ease plan participants' fears and maintain their commitment to effective retirement savings.

By May 11, 2009

Two historic bear markets in eight years have had a major financial — and psychological — impact on defined contribution plan participants. For many, confidence and optimism have been replaced with insecurity and fear that a financially independent retirement is at risk even after a lifetime of hard work and diligent retirement plan participation.

Retirement plan providers and advisers should be proactive in helping plan sponsors to identify the strengths and weaknesses of their plan and to focus on tactics for improving plan performance. To that end, participant education efforts conducted by the 401(k) provider or an outside advisor need to be leveraged to maximize their effectiveness while minimizing the plan sponsor's fiduciary liability.

Strategic Goals

Plan communication and education should focus strategically on the three key drivers of successful retirement plan asset accumulation:

Plan participation.

Employee deferral rates.

Asset allocation.

Goals designed around improving these drivers should be written into a formal education policy statement that provides a framework for implementing a long-term strategy. Many organizations lack this formal structure and consequently are providing a backward-focused message to employees based on short-term happenings in the capital markets.

Once these goals have been established, the tools to implement the strategy need to be effective. Years of research has led many 401(k) experts to agree that participation communication and education should incorporate the following characteristics:

Keep it simple. One-page fliers or short seminars of no more than 30 minutes focusing on a single topic.

Be action-oriented.Allow participants to take action on the topic at the end of the communication. Include a detachable reply card to change deferral percentages or have an advisor meet one-on-one with participants to walk them through adjusting their asset allocation, instead of relying on the participant to take the initiative.

Personalize the message. Provide specific, targeted messages to individual plan participants and non-participants to grab their attention and create interest in your message.

Diversify the media. People learn in different ways. Some want to read a flyer or brochure while others are more comfortable using a computer. Provide different avenues of learning targeted to your employee’s specific tastes.

Remain flexible.Build in the ability to alter a scheduled meeting topic or materials to address recent developments that might be on participants' minds.

Above all, be consistent with your messaging to avoid confusing or overwhelming plan participants.

A Continuing Process

Educating plan participants is a continuous process, and the plan provider or advisor should be prepared, at a minimum, to:

Provide answers to basic investment questions and help participants develop a program to meet their goals and stay on track in any environment.

Review participants' goals annually to ensure that their contributions and asset allocation are still reasonable in the current environment and that their situation has not changed since the last review.

Finally, the plan sponsor should meet with the provider or advisor at least annually to review and compare the sponsor's goals for their plan with actual results achieved and to benchmark the plan's participation, salary deferral and asset allocation metrics with plans of similar size and industry. These statistics can be used to evaluate the effectiveness of the program and make appropriate revisions.

Scott F. Fremer is director of business development at Schneider Downs Wealth Management Advisers.

Related Articles:

Falling Account values Erode Confidence of 401(k) Investors, SHRM Online Benefits Discipline, April 2009

Workers Need to Save More, Work Longer to Recover Lost 401(k) Savings, SHRM Online Benefits Discipline, April 2009

Trying Times Yield Opportunities for 401(k) Plan Sponsors, SHRM Online Benefits Discipline, January 2009

DOL Re-reviewing (Not So) Final Investment Advice Rule, SHRM Online Benefits Discipline, January 2009

401(k) Advice Can Pay Off for Employees, SHRM Online Benefits Focus Area, July 2008

Finding the Right Investment Adviser for 401(k) Participants, SHRM Online Benefits Focus Area, March 2008

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