7 best practices for 401(k) employee education

Have you started planning for this year’s employee education sessions? Consider these employee education best practices for your 401(k) or 403(b) plan:

• Start by constructing an employee education policy statement outlining your goals and objectives for your employee education sessions. Most plan sponsors never put together this document and, as a result, have no idea if they are achieving any worthwhile education objectives.

• Include behavioral finance elements in your sessions. Worry, regret and confusion surround retirement plan decision-making. Helping employees understand how to manage the emotions behind their fears will give them a better shot at reaching their retirement goals.

• Incorporate retirement readiness concepts into your curriculum. Plan participants should understand your responsibilities as an employer and theirs as plan participants.

• Structure short, fast-paced, fun employee education sessions. No session should be longer than a half hour. Most should be closer to 15 minutes. Consider leveraging technology to provide on demand employee education.

And you should also consider:

• Plan misperceptions. Many 401(k) plans were created with generous loan and withdrawal features and sold to employees as good places to save for a down payment on a home, a child's college education, etc. Research has shown that participants aren't contributing nearly enough to fund their retirements, much less down payments on homes, kids’ college educations, etc. Your employee education sessions should strongly discourage use of your 401(k) plan for anything other than retirement savings.

• Loans and withdraws. It is never a good financial decision for a participant to take a plan loan or withdrawal. Make sure your employee education sessions explain why.

• Company match. Most 401(k) plans have a sizeable employee population that still does not contribute enough to receive the maximum employer matching contribution. Your employee education sessions should stress that this is the best investment any participant can make. If they do nothing else, participants should contribute enough to receive the maximum company match.

Robert C. Lawton is President of Lawton Retirement Plan Consultants, LLC (lawtonrpc.com) an RIA firm helping retirement plan sponsors with their investment, fiduciary, employee education and compliance responsibilities. He may be contacted at bob@lawtonrpc.com or 414.828.4015.