Participant Education and the 401(k)

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Participant Education and the 401(k)

In today’s complicated and complex investment world, there is a strong need for active participant education in a company’s retirement plan. According to a recent JP Morgan study:

  • 68% of participants know that they are not saving enough for retirement, saying that their 2015 contributions were below where they should have been.
  • 81% of participants say that they are interested in doing financial planning for retirement, but almost half (45%) do not have a plan. 
  • Nearly half of participants (48%) admit they simply do not spend enough time thinking about and planning for retirement. 
  • 56% of DC participants fear that their savings may not see them through to the end of their lives. 

Workers with access to retirement education are 2x more likely to be confident in their retirement (Ramsey Solutions, 2016)

The majority of Americans are not confident in their retirement, nor have they saved enough to sustain them. It has been studied time and time again- retirement plan participants need information and advice, not just access, to their 401(k) plan.

So how can the plan sponsor not only increase the confidence of plan participants, but also their knowledge and understanding of how to save through their 401(k) plan? 

The answer lies in participant education. 401(k) plan sponsors can help participants gain confidence and stability by educating them on how to best use their 401(k) plan. 

A participant education program must be thorough, yet easy to understand. Remember, not all plan participants are well-versed in financial planning. Many participants have some semblance of an idea as to what happens with the funds within their plan, but many are also unsure as to why or how it all works together. 

In addition, it is recommended that participant education programs be active. Employees may have access to websites and handouts, but this is generally not substantial enough. One effective way to educate participants is through live sessions, rather than simply relying on web resources. Active education includes face-to-face meetings with an adviser and an employee, as well as individualized risk assessments and follow-up. Participants are generally more likely to participate when opportunities for active education are encouraged by their employer.

Here are some examples of what employees might need to be trained on: 

  • Compounding Interest
  • Dollar Cost Averaging
  • Diversification
  • Asset Allocation
  • Risk and Return 

At Anson Analytics our experience with the plans we manage has been that participant advice and education can greatly increase participation, buy in, and deferral rates. By offering one-on-one investment meetings between the adviser and the participants, as well as offering opportunities to attend events such as a “lunch and learn,” participants gain confidence and are more likely to increase their participation in a company’s 401(k) plan. 

The 401(k) should be a shining star in a company’s offerings for employees, and participant education is one way to make it succeed. 

Samuel J. Sweitzer
Samuel J. Sweitzer
Founder and President of Anson Analytics, Inc. - an RIA firm specializing in Research Based Investment Management for Corporate Retirement Plans and Private Investors. Sam is a Chartered Financial Analyst (CFA) and currently serves as Anson's Chief Investment Officer. Sam resides in South Metro Atlanta with his wife and two daughters.

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