Many experts don’t believe that 401k employee education works. The challenges of educating adults, who may not be excited to learn more about their 401k plan, are sometimes difficult to overcome. What can plan sponsors do to make their 401k employee education sessions more effective? After more than 30 years of conducting education meetings, I suggest the following 401k education best practices.
401k Education Best Practices
Correct the misperceptions
Participants have a long list of misperceptions regarding your 401k plan. The most frequent I hear include:
- You should stop making contributions when the stock market falls.
- It is a good idea to take a loan from the plan.
- I only need to contribute enough to receive the maximum company match.
- Money market funds are a good place to invest.
- You should sell when the market falls to avoid losing everything.
- Allocating more of my balance to funds that are performing the best is a good investment strategy. I don’t want to miss something!
Your education sessions should focus on communicating the right practices to follow when investing in your plan. If you are able to dispel your most common myths and misperceptions you will have achieved a lot.
Integrate financial wellness concepts
Experts agree that the most important employee wellness component is financial wellness. Lack of financial well-being causes employees the most stress. Research from Aon Hewitt shows that employees want to learn about budgeting, debt reduction, health care (especially HSAs) and purchasing a home.
Many employers have found that an investment in financial wellness education not only results in greater employee appreciation of their benefits package, it also leads to more productive employees. If you don’t offer financial wellness education now, consider starting a program soon. This is one of the newest 401k education best practices.
Stick with education, not counseling
Some employers have found that financial wellness counseling resulted in added liability for their companies when counselors pushed their own products, especially to their executive group. Hire educators, not counselors. Let your employees find investment advice and products on their own. Remember, if your company has hired an advisor who is recommending a product, it could be inferred that your company is endorsing that product.
Include behavioral finance/economics elements
We are our own worst enemies when it comes to being successful investors. We practice destructive behaviors like loss aversion, mental accounting, overconfidence, anchoring, myopia, and inertia. Helping your participants understand how to manage the emotions behind their fears is one of the most important 401k education best practices. It will give them a better shot at reaching retirement readiness and financial wellness.
Incorporate retirement readiness concepts
Your participants need to understand what they should be trying to achieve. Talk about what retirement readiness means and what they have to do to get there. Most participants would be surprised to learn that they need to add at least 15% to their 401k plan accounts each year to build a retirement-ready account balance.
Develop an Employee Education Policy Statement
If you are really serious about employee education, develop an Employee Education Policy Statement and let it guide your planning and execution. Most plan sponsors don’t take the time to create this document. Even though this is one of the most important 401k education best practices. Many then wonder why their education sessions are so blah. If you don’t know where you want to go, you are never going to get there.
Talk about loans and withdrawals
Participants are always interested in the different ways they can receive their balances before retiring. Many 401k plans were created with generous loan and withdrawal features and sold to employees as good places to save for a down payment on a home, a child’s college education, etc.
Research has shown that participants aren’t contributing nearly enough to fund their retirements, or anything else. Your employee education sessions should strongly discourage use of your 401k plan for anything other than retirement savings.
Discuss your company match
Of all the 401k education best practices, this one is the most basic. Spend a significant amount of time ensuring that your participants know how to receive the maximum company match. Most 401k plans have a sizable employee population that still does not contribute enough to receive the maximum employer matching contribution.
The best possible investment, by far, that participants can make is ensuring they receive the maximum company match. I suggest to all my clients that they send a special mailing (it can be email) to all participants who are not maxing out. Determining who isn’t receiving the maximum match is easy. Your recordkeeper can run a report for you.
Make attendance at your sessions mandatory. Yes, you will get people who come and immediately fall asleep. Yes, it is a little paternal to order your employees to attend, but if you don’t, your sessions will not be well attended. Schedule the sessions during the work-day. Yes, it will cost you money and lower productivity. But employees who are getting paid to learn are much better learners.
Allow almost anyone to attend
Your employee may not be the financial decision-maker in the household. Allow spouses, partners, and significant others to attend. Allow older children to attend as well. I had a client that had a significant Hmong workforce. The children spoke and understood both English and Hmong well. Those who came provided tremendous assistance to their parents. One of the smartest 401k education best practices is to ensure that someone from management, who can and will answer questions about the company, attends every session.
Offer one-on-one meetings
Right after your education sessions conclude, move into one-on-one meetings with your educators. Ask participants to sign up in advance. Meetings should be no longer than 30 minutes. Make sure your educators are not selling products or services in these sessions or you will likely become a fiduciary to those products and services.
Determining Your Educational Format
Progressive employers have found that the best way to educate millennials is via their phones. Online education modules in 10- to 15-minute increments seem to work best. Spend some time figuring out what sort of information-sharing platform will be most effective in your culture. Hour-long, in-person presentations to employees are often no longer the best option.
I believe that all 401k employee education soon will take place in an on-demand, online environment. This allows employees to learn along with their spouses or partners at a time most convenient for them. This flexibility can make your education program much more valuable and impactful.
Deciding Who Will Provide Services
Many investment advisors have the capability within their organizations to address your 401k employee education needs. Most are not as adept at addressing financial wellness concepts.
For help in locating the right financial wellness provider, consider referencing the Program Evaluator that T. Rowe Price has developed. They have researched the universe of financial wellness providers and boiled the list down to the 17 that appear to be best-in-class. Think you may want to RFI the three or four best? T. Rowe has constructed an RFI template to use as well.
Review and update your employee education program today using these 401k education best practices!
Robert C. Lawton, AIF, CRPS is the founder and President of Lawton Retirement Plan Consultants, LLC. Mr. Lawton is an award-winning 401(k) investment adviser with over 30 years of experience. He has consulted with many Fortune 500 companies, including: Aon Hewitt, Apple, AT&T, First Interstate Bank, Florida Power & Light, General Dynamics, Houghton Mifflin Harcourt, IBM, John Deere, Mazda Motor Corporation, Northwestern Mutual, Northern Trust Company, Trek Bikes, Tribune Company, Underwriters Labs, and many others. Mr. Lawton may be contacted at (414) 828-4015 or firstname.lastname@example.org.
Lawton Retirement Plan Consultants, LLC is a Milwaukee, Wisconsin-based independent, objective Registered Investment Adviser (RIA) providing investment advisory, fiduciary compliance, employee education, provider management and plan design services to 401(k) plan sponsors. The firm currently has contracts in place to provide consulting services on nearly $475 million in plan assets. For more information, please contact Robert C. Lawton at (414) 828-4015 or email@example.com or visit the firm’s website at: http://www.lawtonrpc.com. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser.
This information was developed as a general guide to educate plan sponsors and is not intended as authoritative guidance, tax, legal or investment advice. Each plan has unique requirements and you should consult your attorney or tax adviser for guidance on your specific situation. In no way does Lawton Retirement Plan Consultants, LLC assure that, by using the information provided, a plan sponsor will be in compliance with ERISA regulations. Investors should carefully consider investment objectives, risks, charges, and expenses. The statements in this publication are the opinions and beliefs of the commentator expressed when the commentary was made and are not intended to represent that person’s opinions and beliefs at any other time. The commentary does not necessarily reflect the opinion of Lawton Retirement Plan Consultants, LLC and should not be construed as recommendations or investment advice. Lawton Retirement Plan Consultants, LLC offers no tax, legal or accounting advice, and any advice contained herein is not specific to any individual, entity or retirement plan, but rather general in nature and, therefore, should not be relied upon for specific investment situations. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser and accepts clients outside of Wisconsin based upon applicable state registration regulations and the “de minimus” exception.