Tips for Educating Participants

By John Iekel • July 12, 2018 • 0 Comments
It is not required that participants be educated. Nonetheless, there is an argument to be made that it is worthwhile to educate them, and research has bolstered its importance in building participants’ retirement readiness. A recent blog entry has offered some tips on how to be effective in that endeavor.

In “Why Plan Participant Education Is Essential,” a post in the blog run by PlanPILOT, a firm that develops and implements benefit plans, the authors reinforce reasoning regarding how crucial education is in facilitating plan participants’ financial readiness for retirement. “Plan participants often lack a solid understanding of what drives the success of their retirement savings, and increasingly, their unawareness is leaving them unprepared to leave work,” they write. “Only through educated engagement with their retirement plans can participants maximize the value they derive from participating in an employer-sponsored retirement savings plan. In turn, this success boosts employee confidence and increases the value of the plan as a recruiting and retention tool,” they continue.

Teach Participants to Evaluate Their Situations

The first step in making 401(k) and 403(b) plans work is to teach participants to evaluate their own situations. This is the most important step, the authors emphasize, since “this knowledge provides a fiscal roadmap that can inform other life decisions.” Further, they say, “The high-level grasp of healthy financial goals, once attained, will bleed over into all aspects of life and make participants less likely to shirk their responsibility to retirement planning.”

But the critical importance of that step does not necessarily translate to difficulty and complexity, say the authors, arguing that “certain basic concepts in personal finance can serve retirement investors well with minimal training.” They suggest holding brief presentations, one at a time, on:

  • dollar cost averaging;

  • asset allocation;

  • risk profile;

  • diversification;

  • compound annual growth; and

  • dividend reinvestment.

The author contend that “a surprisingly gentle nudge” can be sufficient for participants to become financially autonomous, but the nudge must be “both persistent and relevant.”

Determine How to Educate Participants

A variety of means are used to educate participants, say the authors, such as providing literature to participants and hiring advisors to conduct regular education sessions. The best approach, they posit, is to use a combination of techniques. “It’s crucial to have passive resources (both digital and print) for participants to access on their own time. Still, however, live sessions have been demonstrated to be the most effective in driving engagement,” they assert.

Individual Attention

Each participant has individual needs based on their own specific circumstances, say the authors, making individualized advice “an excellent step to take.” They note that third parties can provide such services, but add a reminder that it is important to make sure that fiduciary responsibilities are met.

Worth Your While

The authors argue that while ERISA does not require participant education, it still helps make offering a retirement plan worthwhile. “If your organization is willing to invest in providing the plan, make the investment in making it work for participants,” they assert.