Improving Employees’ Retirement Readiness
For many people, there is a disparity between anticipated retirement income and expenses during retirement. And why is that? A recent blog post argues that what’s behind it is another disparity — between the availability of retirement plans and participation in them. And one of the antidotes for that, it suggests, is participant education.
In a blog post, “The Educated Participant-how Employers Can Improve Retirement Readiness
,” PenChecks’ Carol Buckmann notes that these gaps were identified and backed by research conducted by the private and public sector. And she says that there is a steady stream of such information and headlines about it, and that this underscores the need to recognize how important it is to “engage in more effective participant education now that 401ks and similar plans have become the primary source of retirement income for most employees.”
The current rules and regulations are only of limited assistance in facilitating participant education, Buckmann argues. ERISA, she notes, does not specifically require participant education. In addition, says Buckmann, the fact that plans/employers must provide annual fee and investment notices, summary plan descriptions and other notices related to safe harbor plans and qualified default investment alternatives to participants can make a plan administrator wonder if education efforts are necessary or just redundant.
Meeting only the letter of the law, Buckmann contends, is insufficient because it requires participants to make an effort to obtain information, and most do not. “Doing only what is legally required does not provide good participant education,” she argues.
The fear that providing participant education can create exposure to liability also inhibits providing education, says Buckmann. But she considers that a faulty premise, because the DOL says it does not consider providing general information about investments to be a fiduciary activity and because the DOL provides protection for those who provide education and more personalized advice.
Still, cautions Buckman, if a plan or employer decides to provide participants with education, it should remember that hiring an outside vendor to perform that function is a fiduciary activity and that it “requires more than just checking off on a ‘to do’ list.”