Education for All

Over the past few years (especially since the enactment of the Pension Protection Act), I have had many discussions with advisers and plan sponsors who have embraced auto-enroll, auto-increase, and target-date investment options. It seems that, many times, these discussions revolve around the continued need, if any, for ongoing employee education in light of such services. Some seem to believe that, through the use of auto features, we have eliminated the need to increase participation and/or reduced the concern over participants not diversifying their accounts. What else should we be communicating?

As much as I embrace and fully support the auto features that many of us are utilizing now on a regular basis, I think it is short-sighted to assume that, when these features are used, there is no longer a significant need to continue to educate and communicate with participants on a regular and ongoing basis. Utilizing the qualified default investment alternatives (QDIAs) or target-date funds is a wonderful opportunity and one very much in the best interest of the participant. My concern is: What will happen when those employees that have been defaulted get their first quarterly or annual statement showing a loss in their account?

As of the end of the first quarter of 2008, we are beginning now to see that, for participants who still believe that their accounts should never go down (which I am starting to believe is 90%, or more, of all participants), having a target-date fund provides little comfort without the education that every participant should be receiving about the realities of their long-term investment strategy. I have had three different conversations with participants over the past week that reinforced my own commitment to augment our own employee education efforts:

• A 34-year-old participant who is in an asset-allocation model that adjusts with his age called me to ask if he should consider moving into the money-market account until “things settle down.’ He emphasized over and over that he knows this is a long-term investment but that he didn’t want to lose “all’ his money in the short term.
• A very astute and successful business owner in his mid-50s was lamenting to me that, last fall, he wanted to move his entire account to cash but the Web site was too frustrating and he didn’t end up making the change. He was alluding to the fact that he had a premonition that the market was in for some turmoil and he easily could have avoided the losses that he now has taken in his account.
• A female participant in her 60s was part of a plan that we recently transitioned to a new provider, and mapped everyone into target-date QDIA funds at conversion. She said that she was in a 2010 fund and did not know anything about investing but was concerned because it looked like her account had gone down since the transition.

Each of these conversations was somewhat surprising because of the amount of employee education we’ve provided. However, after each of these conversations, I had a strong impression that the only thing these participants were really looking for was for me personally to reinforce and validate what they knew they should do—which was to stay put and not panic.

I am more convinced now than ever before that we need to increase our employee education and communication efforts both on a group and individual level. Just because a few participants may not put to good use the education and communication that we have provided in the past does not change the fact that I know that there are thousands of participants whom we have been able to influence and whom we have influenced.

I believe that teaching participants and plan sponsors using fun, nontechnical, and simple educational messages can, and does, make a difference, even if it is just to one participant at a time.

Chad Larsen is President of Moreton Retirement Partners, an NRP Member Firm, and leads NRP’s Intermountain Retirement Partners team. Moreton Retirement Partners is affiliated with Moreton & Company, a full-service employee benefits and insurance firm. Larsen was selected as the 2007 Retirement Plan Adviser of the Year by PLANSPONSOR magazine. He has worked with retirement plan sponsors nationwide for the past 19 years and is a frequent and nationally recognized speaker and presenter to employer and industry groups. His financial background and technical expertise provide a valuable resource for clients in the for-profit, not-for-profit, and public sectors.

*Photography by Joshua Lutz