Participant Education | White Paper
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The document discusses how to make 401(k) participant education meaningful and effective. It argues that education should focus on the participant, not the advisor, and should address topics that are relevant to the participant like take-home pay and retirement savings. Using paycheck analysis software can help illustrate these concepts and their impact in a way that engages participants. The Retirement Analysis Kit (TRAK) is highlighted as a tool that provides reports and calculators to analyze a participant's specific situation, show the effects of contribution amount changes, and help advisors conduct more meaningful individual and group education sessions.
Participant Education | White Paper
- 1. Meaningful 401(k) Participant Education For most 401(k) advisors and plan fiduciaries, the phrase “401(k) participant education” evokes feelings of sitting in a dentist’s chair (“I really don’t want to be here!”) and taking a required biology class in college (“How is this relevant?”). Even the most cooperative 401(k) advisor has trouble conjuring a positive attitude toward participant education, and pessimistic thoughts abound: What good has ever come of participant education? How can these sessions succeed? Education just doesn’t work. A quick search for “401(k) participant education” in Google yields a host of articles with tips for advisors hoping to improve education. Unfortunately, few (if any) specific steps have a proven track record. Much of the advice found in the articles lacks actionable details. “Drive employment participation in the plan.” (But this is an effect, not a cause.) “‘Doing nothing’ is an improper method of education.” (But what if “something” leaves the participant more confused than “nothing”?) “Use clear language.” (To clearly tell them what?) “Hold mandatory meetings.” (Do I even need to comment on this one?) Without specific recommendations to follow, advisors are left on their own to establish the format of participant education meetings. What Participant Education Is Not Before discussing what education should be, we should first talk about what education is not—it is not about the advisor. The education process should never be about how much the advisor knows about 401(k) plans and retirement planning. This may seem obvious, but it can easily become a crutch for an advisor who is unsure of how to move the process forward. Uncertain about the next steps, the advisor fills the time with an oration of his or her knowledge of 401(k) plans. Of course, this is more appropriate for an employment interview than for a participant meeting. This approach quickly disengages the participants, as the meeting emphasizes the advisor’s knowledge. This approach does not demonstrate concern for the participants’ needs. If the advisor’s knowledge is the focus of the meeting, it would be better to “do nothing” (to the chagrin of some). What Participant Education Should Be So what should be the focus of participant education? First, the educational goals must be identified. Should the education help participants understand the vocabulary that advisors are using? Should it help them understand their investments? Should it help participants better understand the fees associated with their investments? And if those are the goals, what would the end result be? Should participants be able to define the words an
- 2. © Trust Builders, Inc. 2013 www.AskTRAK.com Page 2 advisor believes they should know? Should participants be able to articulate an investment strategy? Will this result in higher deferrals? Specific goals will provide specific direction. Education must focus on the participant. This seems obvious, but it is rarely heeded by advisors. An advisor has vast knowledge that participants simply don’t care about. (Participants want to know that their advisor knows it, but don’t necessarily want to know it themselves.) To present much of that information to participants without a specific purpose could alienate the audience. A few years ago, Brian Heckert, an advisor based in southern Illinois, acquired a new plan sponsor. He asked the plan sponsor to pass around a signup sheet for employees to meet with him when he was on site, but no one signed up. Why? Because they had met with a previous advisor and the information they had received was not meaningful to them. It did not engage them. (Again, “doing nothing” might have been better!) Whatever their prior education process had included, it was not helpful. It alienated them from the process and immobilized them from making decisions. The education was not focused on the participants. Education must be meaningful to the participants. If they don’t find it meaningful, they won’t engage in the process. There is nothing more damaging to participants than to set up a meeting (group or individual, mandatory or elective) and provide information that they cannot connect to, are not interested in, and do not want to return to. A meeting like this will merely dishearten participants who should be engaged in a process that has significant consequences for their future. To understand how participants perceive non- meaningful information, consider what “asset allocation” means to a group of participants with low participation levels. Asset allocation is an important part of a retirement plan, but is it really meaningful from the participants’ perspective? Will it really engage the participants? If someone is contributing $5 a month, should asset allocation be the focus of education? (If you answered “yes” to any of these questions, please re-read the previous paragraph.) Asset allocation should not be the starting point for educating participants who have little involvement in their plan, because the concept is not meaningful to them. Meaningful education engages groups and individuals about their retirement. When presented with meaningful education, participants become engaged and lean forward during a meeting. Meaningful education has an immediate impact. Participants want to ask questions. Some want to clarify their own situation. TRAK in Action Mr. Heckert saw this firsthand when he asked the plan sponsor to schedule a mandatory meeting in which he discussed two items. First, he talked about how expensive credit card debt is (a topic that is meaningful to many Americans). Then, using The Retirement Analysis Kit (TRAK) Paycheck Analysis calculator, he illustrated a sample paycheck, indicating that he could do this for each individual in the group. He showed how he could focus on their take-home pay (instead of an abstract contribution percentage to a 401(k) plan) and easily project the future account balance. The participants leaned forward. The Mr. Heckert showed the participants the effects of postponing the increase in contribution. Finally, he asked who would like to have a one-on-one meeting with him. This time, every person in the room signed up for a meeting. Why? Because the education Mr. Heckert was providing was meaningful and engaging. For education to be meaningful, it must start with what the participants understand. This allows them to connect to the new information. Meaningful education is participant-centered, because it starts with their current understanding (not with the
- 3. © Trust Builders, Inc. 2013 www.AskTRAK.com Page 3 advisor’s more extensive understanding). If participants cannot connect to what is being said, they will not absorb it and they will not learn. That is why education must begin where the participants are engaged in the significance of their decisions. The advisor needs to stay focused at the level the participant finds meaningful. Consider the participants’ simplest decision: selecting the percentage for 401(k) contributions. What does it mean for participants to increase their contribution from 3% to 5%? Obviously, any increase means less take-home pay, but how much? And an increase may mean receiving a greater employer contribution, but how much greater? The increase also means more savings at retirement, but how much? And what difference will it make if participants wait a year before deciding to increase their contribution? These are the participants’ key questions. Receiving answers to those questions will help them understand the effects of their retirement savings and how their decisions impact their situation. This type of education is relevant and meaningful. Ultimately, meaningful participant education must provide opportunities for participants to make a decision based on what they have learned. It does not leave them in a fog, but rather explains the importance of their decisions in terms they understand. Meaningful education helps the participants understand why they need to make a decision and conveys a sense of urgency. Participant Education with Paycheck Analysis Paycheck analysis software can help advisors provide this type of meaningful education to participants. It can illustrate a client’s current paycheck. (This is focused on the participant!) It can show them how increases in deferrals affect their take-home pay. (This is meaningful to the participant!). It can show them how the deposits accumulate until retirement. (This engages the participant!) And it shows them the cost of waiting before making a decision. (This presents the opportunity to make a decision today!)
- 4. © Trust Builders, Inc. 2013 www.AskTRAK.com Page 4 TRAK provides paycheck analysis software to help advisors education groups and individuals on all these topics and more. Group Participant Education TRAK’s Batch Gap report is designed for advisors working with groups. After importing census data, the advisor can create a Batch Gap report easily for each individual in the group. The report illustrates the client’s current paycheck, which helps the participant connect to the education process. Additionally, the report illustrates the participant’s retirement shortfall and the impact on take-home pay of funding the shortfall. This provides immediate, relevant and actionable information to the participant. The Batch Gap report engages the participant and is a popular tool for advisors offering group 401(k) participant education. Individual Participant Education TRAK’s Paycheck Analysis tool is effective and efficient for one-on-one meetings with participants. The tool can display the participant’s current paycheck and help the participant connect to the illustration. Similarly, the software can display a modified paycheck by allowing the advisor to enter the desired take-home pay, thereby generating a backward calculation of the corresponding contribution. Optionally, TRAK can illustrate the effects of reducing the participant’s federal 1040 refund and automatically depositing it into the retirement plan, illustrating the accumulation and distribution of the new deposit. The tool also lets participants instantly see the cost of waiting six months, a year, two years, etc. Like the Batch Gap report, TRAK’s Paycheck Analysis calculator makes individualized participant education meaningful. Proven Results Mr. Heckert’s participant education resulted in a 112% increase in deferrals and finding additional retirement accounts participants may have. Other advisors using TRAK tell similar stories. Principled participant education meetings are both effective and profitable. Get TRAK Today! Start making participant education meaningful! Download a demo of The Retirement Analysis Kit today, or call Trust Builders, Inc. at (503) 831-1111 to schedule a demo.