Q-and-A: Does Participant Education Actually Help Participants?

Does education actually encourage employees in a sponsored retirement plan to save more, and does it help them learn more about investments and other aspects of the plan, or is it a waste of time? A survey of advisers and providers shows lack of consensus in the industry. Factors such as participant age and life stage, and awareness of peer savings behaviors can affect how someone responds to education.

Jason Chepenik, managing principal of Chepenik Financial

The answer is sometimes. And it depends. A person’s stage of life is very important If it’s a young person who has their first child and is very interested in understanding proper personal financial stewardship, education can have a lifelong impact. Having life insurance; legal documents; saving 10%— they’re hungry for knowledge. If the individual is approaching retirement, I can help them understand they only have to pull out a little at a time. Between those two barbells, people are very distracted. Life gets in the way. If it’s one-on-one and they’re open to asking questions, I can make a difference. 

It hurts me to say out loud, because I’m a financial planner, and I’m good at teaching people. But those general sessions? You have very little impact on the message. I can teach them that the most important thing is savings rates, not investment expenses, not stocks or bonds. Save-save-save, and don’t have any debt. But only a handful of people are going to be interested.

David de Wetter, director of talent management and organization alignment for Towers Watson

Consider combining education efforts with some social networking. You’re doing it because you want some return, and it’s an employee value proposition.You want employees to fully understand the value of what they have, and to be able to fully avail themselves of the benefit. You want them to know it and appreciate it. 

But what’s really interesting is the effect of social networks on savings behaviors. A professor in financial behaviorism found that when it comes to plan behavior, it’s not enough to talk about the need to save 15%. More effective is letting them know the saving rates and contribution rates of their coworkers. Education will boost it, but combining it with social network data? That will absolutely drive it.

Bellaria Jimenez, managing director of MetLife Solutions Group

Employee education can be helpful. I have seen it move the needle. Consumers have been getting their own information, trying to understand investing better. The financial education they get through retirement programs helps them make better choices and ask questions they wouldn’t have asked in the past. Depending on whose lens you’re looking through, it is valuable. You’re giving them the right tools. 

Plan sponsors might want to consider that if their participants become more educated consumers, they might want to choose different products that the plan doesn’t offer. Participants still don’t have as much knowledge as they need. Education is useful for explaining that sometimes the market is great, and sometimes there are dips.

David Ray, national sales manager, managing director and head of the higher education segment at TIAA-CREF

Education combines well with advice. Engaging employees and providing customized advice helps drive better decision-making. According to our research, among the employees that tapped in-person retirement advice, 68% percent chose to either save more, change their future allocations or rebalance their portfolios. A separate analysis revealed that employees who recently used online advice services also made changes – 54% saved more, changed their allocations or rebalanced their portfolios. Education empowers participants to think critically about their retirement strategy and become confident they’re taking the right steps toward a financially secure future.

J. Kevin Stophel, an adviser with Kumquat, a wealth management firm in Tennessee

It really doesn’t change outcomes. The research I’m seeing is that participant education is really a fiction when it comes to changing outcomes. Most often, outcome is driven by plan design components. You can’t turn a financial non-sophisticate into a financial sophisticate. 

When it comes down to dictating part outcomes, far and way, the largest contributor to a secure retirement is the amount they actually defer. One of the myths participants believe is that it’s the growth of an investment. But research says it’s the amount that’s the most significant indicator of security. The automatic design features are critical to achieving a secure retirement outcome, but they are being significantly overlooked in education. 

Out in the field, we’re trying to help trustees understand, even though it’s accepted practice to spend time talking about investments, when it comes down to asset allocation or the investment manager, those have less impact than the amount deferred. Education has a marginal benefit for a few participants, and drives no real substantive change. There should be much stronger focus on auto design features.