Creating a 401(k) Education Program that Works

Despite the importance of educating 401(k) plan participants to prepare for their retirement by investing well, most programs that purport to do that fail in the attempt, says a recent blog entry.

In “The Confident Participant: How To Create An Effective 401k Education Program,” a Penchecks Blog entry by Carol Buckmann, she writes that “Developing a program that will actively engage and educate your participants requires partnering with their educator to create a program tailored to your participants rather than uncritically accepting some off-the-shelf program.” Unfortunately, Buckmann says, most participants don’t “make a real effort” to understand how a 401(k) works by using the information available to them through printed materials and information ERISA disclosure regulations require to be provided.

To help ameliorate this situation, Buckmann suggests a variety of steps.

• Encourage participant attendance at education sessions.

• Have a focused presentation and a live presenter to answer questions, and use computerized programs to supplement live programs.

• Cover basic investment concepts that help participants understand diversification, risk, asset classes and investments in them, as well investment fees.

• Explain investment menu choices through basic information and discussions of qualified default investment alternatives and managed account options.

• Use interactive materials.

• Use powerful visual materials.

• Let participants evaluate the presenter and tell you if the program is having an impact.

• Sit in on an education session to see for yourself how well the presented does.

• Offer education sessions tailored to different groups, as they have different needs and preferences.

• Make it possible for plan participants to have individual consultations after an education session; keep in mind the letter and spirit of the Department of Labor’s fiduciary rule in doing so.

• Develop an education policy statement that clarifies program goals and how they will be met.

• Supplement education with ongoing investment advice.

“You invest a lot of time and money in creating your company’s retirement plan. Educating your employees about how to use it will help ensure they receive the benefits it was designed to provide,” argues Buckman.