by: Roxanne Fleszar
from: 401kWire
April 14, 2000
Over the past few weeks my articles have addressed techniques for making
employees interested in, and hopefully knowledgeable about, their 401(k)
plan. If you've followed through with my recommendations, congratulations,
you have laid the bait. Now that your employees are biting, let's hook
'em.
The final method to this madness is education and advice. I know that
you've heard it before, but don't you think that there is a reason the
media is beating you over the head with this stuff? It works.
Financial education should be viewed as essential to a 401(k) plan as the
investment options. An effective education program will consist of three
major components:
· Live presentations by a qualified professional - without this,
participants have no avenue for immediate feedback to questions and
concerns.
· Gradual advancement in the complexity of investment of topics in
on-going presentations. Rome was not built in a day, and your participants
will not become investment gurus overnight.
· Multi-media. Back-up live presentations with as many other resources as
you can garner; utilize handouts, internet access, and retain a video copy
of the presentation for review for participants who could not attend the
session or for those newly eligible for the plan. Some of our clients have
a library of videos which start at "Investments 101" and continue on.
We all learn in different ways, so what works for one participant may not
for another. A variety of approaches are a sure-fire plan of attack to
reach the majority.
Will all this education get through to 100% of your workforce? Absolutely
not! Some will understand it and use it, others will understand it and not
use it, and still others may never grasp it. Your next step in the battle
is to offer participants advice. Not directly from you, of course, but
from one of the new participant advice firms popping up on the internet in
a new twist to offer participants more from their plan.
Not only is offering advice a logical next step, but perhaps crucial. This
fashionable new trend in the 401(k) industry was born from necessity.
Years of experience has taught me that participants, those both
knowledgeable about investing and otherwise, want their investment
decisions made for them. Participants yearn for the security of
professional advice to see them into their golden years. Perhaps because
they are aware of their own shortcomings in this area, or perhaps simply
to place the burden on someone else. In either case, the reality is that
the average 401(k) plan participant needs professional assistance, and the
services of advice firms render the most accessible and affordable route.
Although there has been a resounding chorus for many years to advise
sponsors to never give advice, in fact in May 1998 a Department of Labor
(DOL) spokesperson stated "Let's clear this up once and for all:
investment advice is perfectly legal. In fact, the DOL wants participants
to have as much assistance as possible, and we encourage plan sponsors to
offer participants investment advice if that's what they determine their
participants need to make informed decisions." Be aware that they
established three criteria to define investment advice.
· The advice must be provided on a regular basis,
· There must be joint understanding between the participant and the
advisor that the advice will serve as a primary tool for the employees
investment decision, and
· The advice must be customized to the participant.
Unfortunately many plan providers, would lead you to believe that your
participants are receiving free advice as part of their interactive web
site. There is no such thing as a free lunch. The type of information
participants receive from these venues is do not meet the first two
criteria. In addition, you should be aware that plan providers may not
provide these services as the DOL believes an inherent conflict of
interest arises from the fees they earn for managing the funds; such an
service would be deemed a "prohibited transaction".
Independent advice firms are marketing directly to large plan sponsors and
they are establishing alliances with investment providers. Although
experts in the field believe that the advice trend may eventually be
offered as a no or low cost service, you can currently expect to pay
between $20-$50 per participant annually per participant. This cost can be
borne in part or in full by the employee, and in any case offers each
individual a huge reduction off the cost of hiring his or her own
financial planner.
Prospective advice firms should be able to offer the following:
· Co-fiduciary responsibility. This is a priority if you do not want your
company burdened with potential lawsuits in the future.
· Access to the service via both the internet and through print materials,
for those employees who do not have access to the internet.
· Continual information available on all topics relating to retirement
planning and investing, encouraging members to self-educate for additional
understanding of these important issues.
· Material must be presented in laymen's terms that your employees can
understand. Overuse of financial jargon is intimidating and will result in
lack of use of the service by employees.
Singularly, education assists employees in determining their best
financial route to retirement. Combined with advice, employees are assured
the best financial route to retirement.