Saturday, March 14, 2015

Education Policy Statement

Nicholas Zaiko, CIMA®
Investment Consultant
Bridgebay Financial, Inc.

Plan sponsors understand the importance of managing a well-designed retirement plan for their employees.  As deferral rates increase and automatic plan features help encourage savings in defined contribution plans it becomes increasingly important to have a financially literate workforce.  Education is a critical element in ensuring that employees have a good understanding of their benefits.  Employees place their trust in their employer to provide for their best interests.  Education designed to help the employer’s workforce achieve financial stability through retirement savings and sound financial practices is universally well received and appreciated by employees. 

As a plan sponsor, the decision to implement and maintain an education program for employees is integral to pursuing a prudent process and is just as important as selecting the investment options for the defined contribution plan.  Effective employee communication enhances the participants’ awareness of the retirement plan’s features and guides participants to create their own retirement savings portfolios and implement appropriate savings strategies.

Once a formalized education program has been established, participants tend to express greater confidence in their ability to save for their future.  A transparent and well-communicated retirement plan strategy engages participants and forges a partnership in the savings process. 

Education should be targeted to the level of understanding of the employees and participants in the plan.  There may be different levels of understanding, personal circumstances, savings rates and stages in life.  All of these differences may require multi-pronged education programs that address the participants’ unique needs.  Employee surveys and targeted communications are instrumental in optimizing the educational process to achieve positive results.

Education Policy Statement
Most plan sponsors provide a basic level of education for their participants.  Developing an Education Policy Statement documents the employer’s commitment to provide financial education to participants by establishing a framework for a well-structured and communicated program.    Crafting this document provides direction and procedural guidelines for key members of the plan sponsor staff to make decisions regarding the content and implementation of the education program.

The plan sponsor’s approach can be very paternalistic and highly protective of the employees’ best interest in providing for financial literacy and personal finance beyond the requirements of the retirement plan.  Some plan sponsors may play a more limited role that is specific to communicating the elements of the retirement plan to its participants. 

The objectives of the education plan may be to enhance employee engagement, encourage better savings, promote financial wellness and improve employee retention and loyalty.

Benefits of an Education Policy Statement
An Education Policy codifies the plan sponsor’s educational aspirations and documents their commitment to employee education by establishing goals and objectives that can be implemented and measured.  Feedback is typically very positive after the implementation of a well-directed, focused educational program for employees.  Many participants claim to feel more confident in making sound and informed decisions. 

A clearly articulated strategic education plan focuses important resources to optimize budgets and time. Policy statements help plan sponsors and fiduciaries define and document their ongoing efforts in designating resources to help participants understand their choices.  An added benefit for plan sponsors and fiduciaries is that the policy helps document a prudent process.

A well-developed policy identifies goals and highlights responsibilities for implementing, deploying, and measuring results.  Accountability increases the co-operation among different groups involved in providing education to meet the established goals.   

Features of an Education Policy Statement
A policy sets the overall direction of the program and establishes procedures for ongoing education, feedback and communications.  It addresses the overall objectives of the education program, establishes the plan sponsor’s philosophical approach and mission statement.  The purpose of the Education Policy should be to retain employees and enhance their loyalty by offering ongoing investment education.

The policy should define roles, responsibilities, and accountability for the program’s success.  Often this includes the plan sponsor, plan fiduciary advisor, recordkeeper, and education service provider. The roles and responsibilities throughout the planning process, implementation and monitoring the effectiveness of the education program should be outlined.

The due diligence process for the selection of third-party service providers can be identified as well as criteria for the selection of education service providers, potential conflicts of interest, and monitoring their effectiveness.  Criteria for education service providers should be set for the selection, evaluation and ongoing monitoring of educational results.

Setting metrics and milestones provide prudent guidance. The use of participant data and plan metrics can be used to monitor and evaluate success.  Timelines for measuring results, frequency and other general types of metrics can be valuable tools.

Conclusion
A financially educated workforce is another tool plan sponsors can use to encourage and cultivate success for both their retirement plan and their plan participants.  A structured and well-articulated education plan, documented by an Education Policy Statement, can serve to provide fiduciary protection, improve participant loyalty and foster successful savings habits.