Make it extremely clear to
participants that they are responsible for their own financial security
during retirement.
Participants must realize that the plan is not
self-completing and that they must make adequate contributions and
intelligent decisions. The participants also must be made to understand
their role and the role of the plan sponsor in the education process.
Provide accurate and complete
information.
For example, risk is usually discussed solely in
terms of annual volatility. Inflation is often addressed as a separate
topic. The reality, however, is that the biggest risk participants face
is that they will not have an adequate inflation-adjusted income during
retirement. Especially for younger participants, annual volatility
presents little risk. Thus, discussing mutual fund risk solely in terms
of annual volatility is incomplete at best.
Truly educational materials
empower participants to make intelligent decisions.
Do the materials you are currently passing out
impart knowledge which participants can apply to their decision making
process or do they simply communicate data? Can participants really
learn how to apply investment knowledge to their own situations without
hands-on experience?
An education program must address
the needs of both novice and experienced investors.
Is a liability created by calling oversimplified
communications material geared for the lowest common denominator
educational?
Set goals for the education
program.
Setting goals will guide the program design and
implementation process and enable the measurement of the program’s
success or failure.
| Education must be an
on-going process. And it takes time.
How realistic is it to expect to teach
concepts like asset allocation in just one or two hours a year?
If it is not realistic, do plan sponsors have an obligation to
provide tools to enable participants to educate themselves? If
the plan sponsor knows that participants can’t or won't help
themselves, should pre-packaged portfolios (such as life-cycle
funds) be offered? |
Review the materials that vendors
pass out.
Are plan sponsors liable for the quality of the
materials passed out by their vendors, especially since the participants
are paying for the materials via expense charges? For example, do
participants actually understand the questions on risk tolerance
assessments?
Review the quality of the
communicators provided by your vendors.
Do canned talks really accomplish anything? Or
must the session be interactive to be truly educational?
Using an asset allocation program
or service does not eliminate the need for education. In fact, the use
of these programs and services may increase the need for education.
Do participants understand the fragility of the
assumptions? Will participants view these "expert" services as having
guarantees? Asset allocation programs and services might be excellent
tools for informed investors, but they can be very dangerous in the
hands of unknowledgeable participants.
Trustees must treat the
participants’ money as if it was the company’s
.
If corporations spend large amounts of money on
educating trustees of defined benefit plans (when it’s the companies’
money at stake), why is so little money spent on educating participants
of self-directed plans?
All education materials are not
created equal.
For example, are the reports your participants are
getting impacting their behavior, or do they just provide a record of
transactions and account balances?
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