School Daze: Increasing Employee Grasp of Retirement Prep

By John Iekel • May 22, 2017 • 0 Comments

Are your participants dazed and confused about retirement planning and its importance? If so, studies suggest they may not be alone. But recent blog entries offer a way to dispel the fog.

On PenChecks’ blog, Carol Buckmann makes the case for increasing participants’ grasp of retirement plans and planning. She sets the stage by citing a survey that found that 71% of those tested failed a 401(k) quiz, as well as a report that said even college professors gave themselves a B in financial literacy. Understanding how a plan works and choosing investments “based on information provided under ERISA disclosure regulations requires participants to make a real effort. Most don’t do it,” she says. “There is a real need for participant education — and not just about investments,” argues Buckmann.

ERISA requires certain disclosures, but it has no specific provisions requiring participant education, Buckmann notes. She argues that it is a mistake to think that these disclosures and documents are sufficient. “Doing what is required is not enough. The fact is, participants have to make an effort to study these disclosures and extract the relevant information, and we all know that most do not,” she says.

Another mistake, Buckmann suggests, is to worry that educating participants runs the risk of running afoul of the fiduciary activity rules. “The DOL does not consider providing general information about investments and how they work to be a fiduciary activity,” she writes, and drills down: “This includes making available asset allocation models for hypothetical individuals and interactive investment materials.”

Why should one not worry? “The Department of Labor (DOL) provides a number of protections for plan sponsors who provide education or more personalized advice, and the safe harbor for participant-directed investments may provide additional protection,” Buckmann argues.

Still, Buckmann does strike a note of caution, warning that hiring an outside service provider that interacts with participants “constitutes a fiduciary activity regardless of whether the educator or adviser is acting as a fiduciary or the exemption for investment advice arrangements is in place.” And, she adds, “Hiring someone who claims to provide ‘investment education’ without investigating that person’s qualifications and program, as well as potential conflicts of interest, will not pass muster as a prudent process under ERISA.”

What to Do?

Buckmann suggests holding different education sessions for different target groups, and providing incentives for attending education sessions. At those sessions, she suggests:

  • have a live presenter;

  • cover basic investment concepts;

  • use interactive materials; and

  • use powerful visuals.

Buckmann also suggests:

  • explain investment menu choices in your current plan;

  • develop an education policy statement;

  • supplement education; and

  • make individual consultations available after an education session.

Further, Buckmann says, “Developing a program that will actively engage and educate your participants requires partnering with their educator to create a program tailored to your participants.”