401(k) and Benefit Education for Employees

Business owners may establish excellent employee savings packages, but without the proper information, employees may not reach their full savings potential. All signs point to a lack of education and information among investors. Take a look at these these three articles to understand the challenges to informing employees and how to overcome those challenges.

Challenge: People aren’t getting the message

Many Americans Don’t Understand the Basics of Investing (via WSJ)

When it comes to understanding basic concepts about investing, Americans come up woefully short. Consider that while 67% of respondents to a 2009 survey rated their own overall financial knowledge as “high,” only 53% answered this question correctly: “True or false: Buying a single company’s stock usually provides a safer return than a stock mutual fund.”

As a nation, we’re not even reaching children all that effectively. While 46 states include personal-finance education in state standards, just 36 require those standards to be implemented, and only 13 require students to take a personal-finance course in high school, according to a 2011 study by the Council for Economic Education, a nonprofit that aims to promote financial literacy through teacher training and other means.

When asked about six personal-finance concepts, fewer than 20% of teachers and teachers-in-training said they felt “very competent” to teach those topics, and one of the areas they reported feeling least competent about was saving and investing, according to a 2009 survey of 1,200 K-12 teachers and prospective teachers published by the National Endowment for Financial Education.

More at WSJ.com

Step 1: Educate your benefits people

Top 6 tips for educating your benefits department about 401(k) plan fees (via BenefitsPro)

Benefits departments need to come up with a set plan on how to respond to plan participants when they ask about their 401(k) plan’s fees, according to Osler, Hoskin & Harcourt LLP.

According to the business law firm, fee disclosure regulations, which have now gone out to both plan sponsors and 401(k) plan participants, have caused some people to challenge their benefits departments. To meet these challenges, plan fiduciaries need to follow six simple rules for how they respond to participant questions about their fees.

  1. They need to educate themselves about the different types of 401(k) plan fees, including investment costs, trustee or custodial expenses, transaction costs such as commissions and administrative and record-keeping fees.
  2. The law firm also recommends companies compare their plan against other plans of the same size so they can respond to questions asking why the plan is so expensive.
  3. Companies should take this opportunity to review their investment line up for performance relative to the fees they are paying. If the fees are too high, now is the time to go shopping. Keep in mind that some plans pay extra for better service, like access to a financial advisor.
  4. Diversification is key. Make sure your menu includes retail, index and institutional class shares to lower investment costs.
  5. The law firm also recommends that plan sponsors examine their revenue sharing arrangements with a critical eye. Many don’t realize that expenses paid through revenue sharing are actually being paid by the participants. Make sure you have picked the best investments for them, not the funds that pay the most revenue sharing and therefore limit your plan sponsor responsibility for fees.
  6. Also, Osler, Hoskin & Harcourt recommend that companies look into new vendors. Put out a request for proposals to see if better alternatives are available.

Step 2: Educate your employees through multiple mediums

Getting the word out on the positives of employee benefits (via BenefitsPro)

Almost 20 percent of employees said they would like to receive benefits communications through six or more options.

When exposed to the same message through different mediums, employees said they are more likely to understand their options.

Eighty percent of workers appreciate being able to sign up for benefits online so they can enroll when and where they choose, and 9 in 10 workers say they are quite satisfied with the online enrollment experience.

The study shows that when employees have benefits communications delivered in the channels they prefer, and are able to enroll in the channel they prefer, they are more likely to make more informed enrollment decisions and ultimately feel more satisfied with their benefits.

This employee confidence in benefits choices then reflects well on their employers, leading to greater loyalty. Employees who are more confident and satisfied with their benefits selections have a higher perceived value of their company’s benefits.

About thebenefitblog

Eric is a Producer at Lockton Insurance Brokers, Inc., the world’s largest privately held commercial broker. Eric has over 23 years of experience in the insurance industry and has spent the last 11 years with Lockton. Eric specializes in Health & Welfare Benefits, Retirement Planning, and Executive Benefits. Eric's clients utilize his expertise in the areas of Plan Due Diligence, Transaction Structure, Fiduciary Oversight, Investment Design, Compliance and Vendor negotiation to improve the operational & financial outcome for each client. The Benefit Blog is a place to share that expertise and industry news.
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