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.
