On Tuesday, we discussed the unfortunate truth about 401k education—you have to do it, but it has never really worked. Employees are looking for a clear way to invest their hard-earned money that they can trust and understand.
But how to accomplish that? All the big players have been flailing away at the problem for years with little to no success. But let's face it, they're investment sellers, not educators. And once they get the "low hanging fruit" in your plan, they are pretty much saying "mission accomplished." But that's ok, for a successful plan, they need to go anyway.
The startingly simple answer begins with a plan of all model portfolios. This gets all participants professional management of a portfolio that matches their needs. The initial education task is then a simple one: how to pick the portfolio that makes sense for me. This is a simple function of a risk questionnaire and years to retirement.
Investment education gives way to savings education—something everyone can understand.
The themes are simple:
- Everyone should be in the plan
- Start saving early
- At all times of your life, save as much as you can
- Pick a portfolio that fits your risk tolerance and years to retirement
- Stay the course
Whether you’re 20 or 60, these basic goals are just as appropriate.
Written materials, presentations and web-based education tools can now be greatly simplified and the vocabulary of investing largely abandoned. The participant is not confronted with investments, buying, selling, re-balancing and investment toolboxes. How could that ever work?! The basic message is “set it and forget it”—until your time horizon changes.
Employees will not be scared to join. They’ll be confident they’re investing their hard-earned dollars in a way that makes sense for them and they’ll be inclined to set it and forget it. And they may even see you as really helping them to maximize their retirement savings.
You will see much improved participation, fewer compliance issues, more appreciative participants who are more capable of retiring, and retirees who will say nice things about the company in their community.
A plan that manages its investments and employee education components in this way has the best chance of being successful for employer and employee alike and it has been proven to work.
What's your definition of a successful plan? Great participation? Low cost? Helping employees maximize their retirement savings? Preventing harmful participant decision-making? Compliance? Fiduciary excellence?
The questions we pose in this blog are designed to get you thinking about where your plan is today, and where it might fall short of your own definition of success.
Click the button below to read our case study and see what great 401k education can accomplish!