Education Critical to Helping Participants Use a Retirement Plan

Merely offering a retirement plan is not enough if plan sponsors want their participants to fully embrace it, according to a report from Arnerich Massena, Inc., “Retirement Plan Best Practices: Participant Education.”

The company notes that a study by the National Institute on Retirement Security found that the median retirement account balance is $3,000 for working-age households, and $12,000 for near-retirement households.

Thus, Arnerich Massena says, education is critical to helping participants become aware of their plan and its critical value to them. “Combined with effective plan design and maintenance, education can play a significant role in improving participant outcomes,” the company says.

The company says the first step is to take a diagnostic review of existing educational services and tools, as well as the plan’s objectives and goals and problem areas among participants. Arnerich Massena says plans can work with their providers and advisers “to examine plan statistics like the participation rate, average deferral rate, asset allocations, usage rates of plan options and features, and average account balances.” In short, sponsors should find out whether participants are on track for a successful retirement.

Goals may include the following: increase participation in the plan, raise awareness and understanding of the plan, increase deferral rates, improve asset allocation, reduce financial stress and increase productivity, improve employee satisfaction and help employees plan for long-term retirement security.

By surveying participants, sponsors can find out what they would like from an educational program. It can also reveal participants’ level of investment and financial sophistication.

Next, sponsors should consider channels of communication, such as online interactive tools and webinars, paper and printed materials or in-person events. If participants are of various ages, several methods of delivery may make sense, the company says. Printed materials can include workbooks, guides, posters, flyers, table tents and newsletters. Electronic/online materials can include videos, audio presentations, websites and email. In-person education is also important, as participants nearly always say they prefer in-person education above all other methods—including one-on-one meetings with an adviser, not just group meetings.

Sponsors should also be mindful of targeting messages/education to various life stages. For those just starting out in their careers, they may want information on student debt, saving for a house or a car, investment basics and why saving for retirement is something they should start now. For those mid-career, they need help calculating a savings goal, understanding their investment strategy, and balancing various financial goals. For those nearing retirement, they need help planning retirement income, adjusting their investment strategy and understanding distribution options. For retirees, they need help with managing retirement income, estate planning, budgeting and minimum required distributions.

When designing educational materials, Arnerich Massena says, they should be easy to read with down-to-earth language—and even entertaining. The company suggests using characters and stories, being colorful, making it interactive and including examples.

To succeed at all of this, plan sponsors may want to work with their providers and/or advisers. It is also important for sponsors to measure how successful their educational programs are, and make changes as needed. They can do this by looking at online usage rates and surveying participants.

This report is one of a five-part series that Arnerich Massena issued on retirement best practices. Other topics included plan governance, plan design, investment menu construction and plan monitoring.