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Is your 401(k) Education Program Helping or Hurting Participants?

If you were to call an impromptu employee education meeting and quiz your employees on a few 401(k) basics, how do you think they would fare? Would they know the answers to questions like: “At what age can you withdraw from your 401(k) without penalty?” and “Do you know what percentage of your salary you should invest in your 401(k) to successfully prepare for retirement?"?  Recently, Fisher Investments conducted a survey that asked those same questions. While most people think they’re reasonably knowledgeable about their 401(k), 3 out of 4 respondents failed the quiz.[i]

The reality is, nearly two-thirds (63%) of Americans don’t understand how their 401(k) plan works.[ii] However, financial experts believe that not taking full advantage of their 401(k) is the biggest mistake an employee can make when it comes to retirement planning. As such, it behooves plan sponsors to make sure employees recognize the benefits of saving for retirement using their 401(k). An effective education program can help bridge the knowledge gap by teaching employees how to make the most of their workplace 401(k) plan. Such a program may improve participant engagement with the plan, along with improving participation and savings rates. Moreover, you can increase your education program’s effectiveness by partnering with a financial advisor who can support your employees in making critical financial decisions and help them achieve better retirement outcomes.

Bridging the Education Gap

Why do you suppose so many people failed Fisher Investments’ quiz? We believe it’s because they haven’t been properly educated about their 401(k) plan and its benefits. Ask yourself: how effective is your company’s benefits education program? Is it helping or hurting participants? If you believe your participant education program isn’t serving your participants, it may be time to consider making some changes.

Minimum Requirements

If your company offers a retirement plan, at minimum you are required to provide participants with the following documents:[iii]

  A Summary Plan Description: a plain-language description of the plan that informs participants of their rights and responsibilities under the plan, along with its features and what to expect.

  An Individual Benefits Statement: provides participants with account balance and vesting information.

  Automatic Enrollment Notice (if the plan includes an automatic enrollment feature): details the plan’s automatic enrollment process and participants’ rights — must specify the default deferral rate, the participant’s right to change their deferral rate (or to opt out), and the plan’s default investment.

  A Summary Annual Report (SAR): Provided annually to participants; summarizes the financial information in the plan’s annual report, the Form 5500.

  Blackout Period Notice: Advanced notice required 30 days (but not more than 60 days) before a plan closes to participant transactions. Blackout periods typically occur when the plan changes recordkeepers or investment options, or adds participants due to a merger or acquisition.

Filling the Void

While it’s important to make sure your participants receive these key documents throughout the year, there is more you can do to educate them and increase their engagement with the plan. Many plan sponsors face a common issue: bridging the gap between a poor education program and a good one. Partnering with a financial advisor enables you to fill the void.

Below is a list of potential outcomes of a successful education program, having positive impact for both plan sponsors and participants: [iv]

For plan sponsors:

·         Improve visibility of the plan, resulting in greater appreciation by participants

·         Improved employee attraction and retention

·         Meet your ERISA 404(c) safe harbor requirements

·         Reap the value of your contributions to the plan

·         Improve employee productivity


For participants:

·         Improve long-term retirement security outcomes

·         Increase participation and savings rates

·         Reduce financial stress and increase happiness and well-being

·         Improve financial literacy

·         Improve long-term financial decision-making


Education that Impacts

Some plan sponsors believe directing participants to the plan’s website or toll-free number without providing additional guidance is a sufficient education program. We beg to differ. A comprehensive program that includes a variety of communications delivered via different channels (email, video, print, face-to-face, one-on-one) is much more impactful and delivers vastly superior outcomes for both plan sponsors and participants. We recognize plan sponsors are busy — you juggle many different responsibilities on a daily basis. That’s where an advisor partner can help provide valuable support, allowing you to offer a more robust participant education program.

One-on One + Group Meetings vs. Self-Guided

Participants who are required to guide themselves through their own retirement planning experience have less successful outcomes. They are often overwhelmed and suffer from “analysis paralysis” - unable to make critical decisions, such as which investment options to choose in their retirement account. Active education efforts include face-to-face meetings — either group settings or one-to-one (advisor-to-employee).

Group meetings hosted by a financial advisor partner can de-mystify the plan’s benefits and help participants understand how the plan can help them save for the future. One-on-one meetings with an advisor can build on that knowledge, providing the opportunity to deliver individualized risk assessments and assist participants in choosing the retirement plan investments that best meet their needs based on their unique circumstances and goals. Having an advisor on board provides an opportunity for follow-up with individual participants and is a way to hold them accountable for achieving their goals, thus setting them up for success.

Advisor vs. Toll-Free number

An automated or scripted response is not a replacement for interacting with a real person. Every retirement plan participant’s situation is different, and for that reason, they have needs that are as varied and diverse as your employee population. Retaining a retirement planning specialist/advisor who can offer customized, one-on-one retirement planning assistance can deliver more tangible, impactful results for participants than they can get from calling a toll-free number.


Retirement plan education can have a significant positive impact on employees, including benefits such as: [v]

·         Freedom from financial stress (21%)

·         Freedom from debt (21%)

·         Freedom from worry about unexpected expenses (21%)

·         Freedom to make choices (18%)

Employee Benefits: Employees, especially Millennials, want financial planning services: seven out of 10 would welcome such services. Currently, only a quarter of employees are offered financial planning services in the workplace, with retirement planning being the most common service provided.[vi] Clearly, there is demand and room for improvement when it comes to the prevalence of financial planning services in the workplace.

Employer Benefits: Offering an education program can yield tremendous benefits for employers. As employees’ understanding of the retirement plan benefit grows, their interest and participation is more likely to increase as well.  Improved participation rates lead to higher pass rates for plan non-discrimination tests.

Negotiation Leverage: Increased participation levels lead to potentially higher account values and an increase of plan assets, giving plan sponsors greater leverage to use their plan’s asset size to negotiate reduced 401(k) fees with recordkeepers and other service providers. Not only does this lower costs across the board, it also helps plan sponsors fulfill their fiduciary duty to keep fees “reasonable” for participants.


Partnering with a financial advisor can support your plan’s participant education program in myriad ways, including offering more individualized attention and targeted recommendations. These efforts can lead to more productive, less financially stressed employees — a very good thing indeed - since employees who understand their retirement plan benefit are more likely to take advantage of it. As a result, they are also likely to feel more confident and prepared for the future. Financial peace of mind is one of the best benefits you can offer your employees, and it all starts with a strong retirement plan education program supported by a knowledgeable financial advisor partner.



949.455.0300 x222 | cfarrell@fmncc.com | fmncc.com


Investment advisory services are offered by Financial Management Network, Inc. (“FMN”) and securities offered through FMN Capital Corporation, (“FMNCC”), member FINRA & SIPC.

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