The Retirement Financial Education Challenge!
The need to offer employees retirement financial education at a level fulfilling fiduciary obligations is a challenge leading to the following questions. They are difficult questions. The answers will differ by employer based upon each employer's attitudes. Below each question is a widely accepted answer.
1. What level of education should be provided?
A level demonstrating that meaningful education was made available.
2. How often should education be offered?
Offerings should be frequent and consistent so there is no excuse not to attend.
3. Should participation be mandatory or voluntary?
Employee participation should be voluntary.
4. If voluntary, what if no one participates?
Your obligation is to offer and promote education and document that you made it frequently available.
5. What about employees with scheduling conflicts or who are on vacation or out sick?
Online education solves this problem. There is no excuse not to participate!
6. Should education be provided during or after work?
After work. This avoids work shutdowns. Employees are better able to focus on the class.
7. Should education be offered on or off premises?
Education should be offered both on premises after work and off premises after work.
8. Should employees be paid for participating?
No. The education is virtually entirely for their benefit. It is not required to pay employees for participating.
9. Will mandatory attendance at an on-the-job class push employees into overtime that week?
Yes, attendance at a mandatory on-the-job class could cause payment of overtime.
10. What are lost production costs for workday investment education meetings?
Lost production costs are four times the employees' hourly wages.
11. What is the cheapest (best value) way to provide the required employee education?
The best quality and volume of education for the best value is provided online!
12. What documentation of education offerings and attendance needs to be kept?
A complete documentation of education offerings should be maintained; this includes:
- Copies of scheduled dates and times demonstrating a wide range of availability.
- Copies of dated notices of the scheduled classes demonstrating adequate advance notice.
- An outline of the class curriculum demonstrating relevant topics.
- A copy of the materials used in the class demonstrating understandability.
- The credentials of the presenter.
- A list of the attendees.
- A statement completed by attendees acknowledging understanding of the material.
What are the flaws of on-the-job Retirement Plan Group Meetings?
Many employers don't want to pay for retirement financial education. Instead, they allow the 401(k) vendor to come to the workplace during working hours and hold employee meetings to explain the 401(k) plan and discuss investments. The employer thinks this is getting off cheap because there is no fee payment to a professional retirement financial educator. But what are the flaws of this approach?
Most employers make employee attendance at meetings mandatory, typically holding meetings during the workday. The employers' operations are shut down during the meeting. Employers want meetings to finish quickly so employees can go back to work. Employees must be paid, and this may push some employees into overtime for the week. Employees are distracted during the meeting, feeling they should be working and not sitting in a meeting. Information disseminated is usually limited and basic, and little if any academically based education is provided.
(See cost analysis)*
What are the benefits of online Employee Retirement Financial Education?
Participation is voluntary but strongly encouraged and continually promoted. The employer does not "Move the meetings along so that everyone can get back to work!" Employees focus on the education and do not worry about getting back to work.
The employer better complies with its fiduciary responsibility by providing the following:
- Satisfies fiduciary responsibility to provide investment education.
- Eliminates employee time spent during the workday.
- Enhances employee education better than on-site meetings.
- Reduces plan sponsor and plan participant costs
- Delivers a more thorough and consistent education message.
- Financial education opportunities are consistently offered at multiple convenient times.
- Financial education is in-depth, thorough and professionally presented.
- The employer has third-party documentation of financial education offering dates and times.
- There is no excuse for employees not to have participated at least once per year.
- The employer has third-party documentation of employee participation.
- The employer has third-party documentation of each employee's comprehension of topics.
Questions about Financial Education Responsibility and Cost
13. "Isn't this what our Investment Professional is supposed to do?"
No! Your Investment Professional is essential as your plan level investment advisor, helping you to evaluate and select the investments to offer your employees. Your Investment Professional also provides individual participants with portfolio recommendations. Preparing and presenting educational material in a practical way for a classroom or online setting is the business of Retirement Financial Educators.
14. "Why are employer plan sponsors responsible for providing this education?"
Because this is the way it has worked out for plans with participant-directed investments!
The Department of Labor 404(c) Regulations, along with the participant-directed investment fiduciary standards require it. In addition, the turmoil in the investment markets demands that employers provide more education.
15. Isn't this just another cost being put onto employers?
No! This doesn't have to be an employer cost!
The retirement plan is allowed to pay for the ongoing education of the participants because this is an essential element of the ongoing successful operation of the plan. By directing a payment from the retirement plan assets to the education provider, the cost of the education can be paid for by the plan itself. When combining this with voluntary online education, the employer's cost of retirement financial education becomes zero!
16. Isn't this really shifting the cost of education from the employer to the plan participants?
Yes! There is no doubt that this is a shifting of the cost. However, the trend in the retirement plan industry is to shift costs from the plan sponsor to the plan itself, which in turn is essentially paid from the participants' accounts. This has been the case with both asset management costs and plan administration costs. So why not education costs?
But remember, even with shifting costs, when adjusted for inflation total retirement plan fees are less today than they were in 1984. This means that although participants are paying a higher share of the costs, and in most cases all of the costs, the new total cost they are paying is still less than what they have paid in the past.
17. Can the cost be shared between the employer, the plan and the employees?
Yes! The cost may be paid entirely by the employer, the plan or the employees; or the cost may be shared in any way as long as the sharing method is the same for all employees.
Example: Cost Savings Gained From Online Education
E.g.1. ABC Company with fifty employees holds mandatory two-hour retirement plan meetings during the workday. ABC employees earn $18.00 per hour with taxes and benefits being another $3.60 per hour. The direct cost per hour per employee is $21.60. If every employee attends the two-hour meeting, then the cost is (50 E'EEs x $21.60 rate X 2 hours) = $2,160.00.
This cost analysis is incomplete. It ignores the allocation of non-employee overhead that could double the answer in this example to $4,320.00.
THIS IS ALSO WRONG!
Businesses are not operated to cover costs. Businesses operate for profit. If the above costs account for 60% of sales, then the sales value of lost production during the meeting is $7,200.00. THIS IS NEARER TO THE CORRECT ANSWER! The employer's cost is $144.00 per employee or $72.00 for every one hour of employee meeting. The employees receive little substantive education.
E.g.2. Review the employer in example E.g.1. The employer changes its policy and begins offering voluntary online retirement financial education. In addition, the employer directs that the cost of all such education be paid for out of the retirement plan assets. The employer's cost of education has dropped from $7,200.00 to zero!
The cost of the online education is $10.00 per year per participant. This is a total cost of $500.00 per year for the fifty employees of ABC Company. It may be paid by either the employer or by charging each employee's retirement account the annual $10.00 fee. This may be the least expensive, yet most valuable,employee benefit that you could provide. (Note: The typical employee uses more than $10.00 in toilet paper a year.)