401(k) Education Must-Haves

There are many important topics to cover when educating plan participants about a 401(k) plan and saving for retirement. In the process, it’s not hard to miss some matters that should be covered. A recent blog entry argues that five important topics often are omitted.

In “5 Top Education Topics 401k Plan Sponsors Need To Ask About But Don’t,” FiduciaryNews’s Christopher Carosa identifies those topics. “There’s always something new under the sun, and that means there’s always educational topics 401k plan sponsors should be asking about but aren’t.” he writes.

Overall Financial Health. Stressing the 401(k) plan in an education program about it “makes sense,” says Carosa. But it should not ignore financial matters beyond the plan, he argues, saying, “just as there’s life beyond the 9 to 5 desk, there’s financial life beyond the 401k plan. There are basic considerations that impact everyday living for all workers.” Carosa posits that teaching plan participants about their overall financial health will benefit them in retirement as well as in the short term. He cites Amy Ouellette, Director of Retirement Services for Betterment for Business in New York City, and her suggestion that employers personalize financial education and tools that they provide, since employees’ needs and circumstances vary. 

Consequences of Early Withdrawal. Early withdrawal spells not only a lower balance, Carosa points out. The effects of early withdrawal linger far longer, he notes, because of its effect on compounding. “The power of compounding only occurs when the investment is continuous. Anything that disrupts the continuity of retirement savings risks losing that power of compounding,” writes Carosa. He suggests that “Demonstrating this through blunt and even aggressive educational programs can help employees meet their retirement goals.”

Preparing for an Emergency. Carosa suggests that having a specific session in a financial education program can be helpful to employees. He cites Terry Dunne, Senior Vice President and Managing Director of Millennium Trust Company, who argues that IRAs funded by payroll deductions — also known as sidecar IRAs — are a way to help employees set money aside for emergencies.

Missing Participants. It’s easy for employees to leave an employer and leave their money in the former employer’s 401(k) plan, Carosa warns, and that can makes things hard on a plan sponsor if those individuals “disappear altogether.” He argues that plan sponsors need to be aware of this and that there are tools they can use to make distributions to former employees.

Cybersecurity. Plan sponsors are “major targets” for cyber crime, Carosa says, but often are not as secure as plan providers. He observes that PlanPILOT Managing Director Mark Olsen has argued that it “should be a top priority for sponsors as there is a tremendous amount of financial and personal data shared between the plan sponsor and recordkeeper,” and adds that plan participants may want to be aware of cybersecurity since it has a direct impact on them.