What Employers Should Share With Employees Regarding 401(k) Advice
Although the law does not allow employers to directly advise employees on how to invest their retirement funds, the Department of Labor does encourage employers to provide access to an independent provider.
More employers started choosing 401(k) providers who go the extra mile in employee education, and are regularly reviewing plan offerings to see that workers have a diverse set of options.
Nearly half of all employers offer access to investment advice, according to The Plan Sponsor Council of America.
Use your investment policy statement.
An investment policy statement defines why and how investments are selected. It’s important to have this document on hand in order to run the plan responsibly. These days, employers are not just tapping their resources to design plans that they can “set and forget.” Now they are actively reviewing and evaluating funds. After all, employers don’t want to be the ones on the hook for poor portfolio performance. Circulate a copy of your Employee Education Policy Statement, so people know where to go for more information when they need it.
Choose funds wisely.
If a particular employee asks about adding a particular fund, you want to show that you’re actively listening. Yet, you don’t want to immediately add funds without first considering whether it’s appropriate for the plan. Overstuffing plans with funds – the average number is about 15 – can leave employees saturated with a plethora of options they can’t sort through. Fewer, better choices with broad parameters offer the best path to solid asset allocation.
Personalize financial wellness education.
Most people don’t want to spend more than 20 minutes a month learning how to maximize their 401(k) plans. No one wants to read through boring brochures, but if the content is personalized and presented in a fun way, people will engage. You can leverage Ubiquity Resources for your own education and to help your employees as well.
Correct widespread misperceptions.
Plan sponsor education sessions should focus on correcting common misperceptions. For instance, many plan participants erroneously believe:
- “I should stop contributing to my 401(k) when the stock market falls to avoid losing everything.”
- “If I need money, I can just take a loan out of my 401(k), no problem.”
- “I only need to contribute enough to receive the employer match.”
- “Money market funds are the best place to invest.”
- “I should allocate more of my balance to the funds that are performing the best.”
- “Company stock is the safest place to park my money.”
Simply dispelling the myths is a big achievement. Make these information sessions paid and mandatory.
Keep an eye on the stragglers.
Sponsors should devote considerable attention to ensuring that plan participants know how to receive the maximum company match. Most 401(k) plans have a sizable population that does not contribute enough to reach maximum value. Send out special mailings to all participants who are not maxing out. Offer 30-minute, one-on-one education sessions with plan sponsors.
If nothing else, employers are in a position to preach patience.
Remember, you have the most captive audience at enrollment. If nothing else, preach patience. Explain that the 401(k) is a long-term investment designed to provide for one’s retirement. As an employer, you can shed clarity on the investment process and instill confidence with charts that show long-term market recoveries.
The best approach is to avoid immediate, rash action and to make smaller tweaks along the way. Rather than move fully to bonds, consider a halfway jump to see what happens. Rather than stopping contributions during a downturn, shift them or scale back slightly.
The first 10 years of investing in a portfolio can account for up to 50% of the total balance after age 65, so it’s important to resist the urge to pull money out with loans early on.
Employee education can be an uphill battle, but you are already ahead of the curve by offering your workers a retirement savings plan. Contact Ubiquity to learn more about what we can do to help small businesses make sure all plan participants are receiving maximum value from their plans.