David Blanchett, Morningstar Investment
What forms of education help participants increase retirement
savings? At a basic level, education entails going beyond the standard
investment menu to highlight the resources and tools that can help
craft investment and savings recommendations. It’s important to focus
on the tactics that will resonate with your plan’s participants.
Here are 3 ways to help educate participants:
Make your retirement savings material easy to
read. Participant communications are often overly complex.
These materials typically try explain in great detail how each
aspect of the plan works in order to satisfy legal requirements.
Participants don’t always read these materials. (How many even
review their quarterly statements?) So, the communications sent to
participants should be simple and focused on what could help create
better outcomes. For example, participants may be much better served
receiving a one-page mailer about how to save for retirement or what
their optimal savings rate could be, rather than a five-page
document outlining the formula for determining the monthly crediting
rate for their stable-value fund.
Focus on good financial habits. For some
participants, getting a handle on paying off high-interest credit
cards and student loans may be a more important goal than stashing
money away for retirement. The interest rates on credit cards can
sometimes exceed 20%, which is a much higher “return” than one can
be reasonably expected to earn through investing in stocks or bonds.
Furthermore, integrating financial wellness programs into the
retirement equation can help provide a more holistic solution than
is usually the norm today. These programs can help participants
understand the value of good financial habits as the foundation of
retirement savings. Education on simple, yet powerful, concepts like
spending less than one earns and saving for emergencies can be
Sync up with plan design. Education can also go
hand in hand with plan design to help employees understand plan
features and limitations. An example of this is with provisions
designed to limit plan leakage. This is an important issue for plan
sponsors and participants. While hardship distributions and loans
can provide a valuable source of liquidity for some employees, they
can also pose definite risks to retirement savings. There has been
new research on this topic over the past few years, with the primary
focus on stopping participant leakage through intelligent plan
design by limiting provisions such as loans and hardships. The
Defined Contribution Institutional Investment Association has an insightful research paper that addresses
the impact of leakage and possible solutions.
Leveraging education is a simple step that employers can take to
help participants navigate the complexities of planning for the future
and potentially boost retirement savings.
Get the full white paper “Defining Retirement
Success for Defined Contribution Plan Sponsors: Begin with the End