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When a small business offers a 401(k) plan, its employees often need some sort of 401(k) education in order to make the two primary investing decisions applicable to 401(k) participation – “how much should I save?” and “where should I invest?”
In the past, this education has been most commonly delivered in 401(k) enrollment meetings led by a company representative or professional financial advisor. However, this is changing. A growing number of small businesses are delivering 401(k) investment education to employees online or by e-mail (i.e., e-delivery).
Why the change? Today’s technology and investment products make 401(k) investing decisions easier than ever for employees. Most, if not all, 401(k) providers offer online tools to keep retirement savings on track while new 401(k) investment products can make 401(k) investing decisions simple for even the most inexperienced investor. An e-delivery approach is often less costly too.
401(k) investing education should be viewed as a service. Like any 401(k) service, it should offer a return on investment (ROI) for plan participants. Are 401(k) enrollment meetings still the best method for delivering investing education to your 401(k) participants? Making this judgment is not hard - there are only a few factors to consider.
What topics are covered during 401(k) investing education?
The purpose of this education is to help employees make informed 401(k) decisions. Key topics include:
- Savings basics - To demonstrate the importance of saving early
- Plan features – To summarize the key features of the company’s 401(k) plan
- Tax benefits – To explain the different tax benefits available to 401(k) savers
- Investing concepts – To explain mutual fund asset classes and asset allocation strategies
401(k) participants are most commonly confused about asset allocation. Fortunately, today’s investment products are making asset allocation easier than ever.
Does my company need a 401(k) enrollment meeting?
Most 401(k) providers just offer one method for delivering 401(k) investment education or upcharges for enrollment meetings. That said, you’re probably choosing a method when you choose a 401(k) provider – that’s something to keep in mind when shopping around. To decide if your plan needs formal enrollment meetings, I recommend you consider the following factors:
- Fees – Small businesses have a fiduciary responsibility to pay only reasonable 401(k) fees for necessary plan services. Do enrollment meetings add fees to the plan over e-delivery? If so how much?
- Fund lineup – Does your 401(k) plan offer Target Date Funds TDFs or Target Risk Funds (TRFs), or custom TDFs or TRFs constructed by a professional financial advisor? Most 401(k) investors have no idea how to diversify their account using an asset allocation strategy. TDFs and TRF make asset allocation simple – possibly eliminating the need for a confusing explanation of the concept in an enrollment meeting.
- Online Tools – Does your 401(k) provider offer calculators and/or videos that sufficiently guide participant investing decisions? If yes, an enrollment meeting may not be necessary.
- Employee demographics – What sort of education do your employees respond to best? While Millennials might prefer e-delivery of 401(k) investment education, Baby Boomers might prefer a more interactive enrollment meeting.
401(k) investment education is important!
Too often, 401(k) participants have no idea how much they should be saving for retirement or where to invest their account. Fortunately, new technology and investment products are making these choices easier than ever.
These developments are making it easier for small businesses to deliver 401(k) investment education to its employees too. 401(k) fiduciaries should evaluate whether the e-delivery of this information is now the best choice for their plan.