By Robert C. Lawton, AIF, CRPS, President, Lawton Retirement Plan Consultants, LLC
Have you started planning your 2017 401k employee education sessions? Generally, most plan sponsors conduct employee education sessions during the early part of the new year to explain changes that went into effect on January 1. As you think about your 2017 education sessions, keep the following 401k education best practices in mind:
401k Education Best Practices
Offer financial wellness education, too
Three-quarters of mid- to large-size companies, according to Aon Hewitt, will offer some sort of financial wellness education by the end of 2016. Aon Hewitt also indicated that half of all employers, regardless of size, held a financial wellness education program in 2016. Experts agree that the most important employee wellness component is financial wellness. If you don’t offer financial wellness education now, consider starting a program in 2017.
Address the most important financial wellness topics
Research from Aon Hewitt shows that the most popular topics are budgeting, debt reduction, health care (especially HSAs) and home purchasing. Many employers have found that an investment in financial wellness education not only results in employees appreciating their benefit package more, it also leads to more productive employees.
Stick with education, not counseling
A lot of 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.
Marry financial wellness education to your 401k employee education
One of the most important 401k education best practices, if you aren’t running a financial wellness education program now in concert with your 401k employee education sessions, consider lining them in 2017. Many employers have found that the two education programs work well together.
Include behavioral finance
Worry, regret and confusion surround employee 401k plan decision-making. Data show that the most significant source of stress for your employees is financial. Helping them understand how to manage the emotions behind their fears will give employees a better shot at reaching retirement readiness and financial wellness.
Incorporate retirement readiness concepts into your curriculum
Correct plan misperceptions
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, much less down payments on homes, college educations, etc. Your employee education sessions should strongly discourage use of your 401k plan for anything other than retirement savings.
Caution against loans and withdraws
Studies have shown that 1 in 5 participants has a loan, which means that many employees are using their retirement accounts as piggy banks. It is never a good financial decision for participants to take plan loans or withdrawals. Make sure your employee education sessions explain why.
Discuss your company match
This has always been one of the most important 401k education best practices. Most 401k plans have a sizeable employee population that still does not contribute enough to receive the maximum employer matching contribution. Recent research shows that participants left $24 billion in company matching funds unclaimed because they didn’t save enough to receive a full match. Your employee education sessions should stress that this is the best investment any participant can make. If they do nothing else, participants should contribute enough to receive the maximum company match.
Determining Your Educational Format
Many 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 aren’t always the best way to go.
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 14 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 strategy today using these 401k education best practices!
About the Author
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 Inc., AT&T, First Interstate Bank, Florida Power & Light, General Dynamics, Houghton Mifflin Harcourt, IBM, John Deere, Mazda Motor Car Company, 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 more than $400 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, 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.