Products June 25, 2018

Retirement Plans Must Be Paired With Educational Programs

Ongoing education makes participants aware of the plan and underscores its value.

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Merely offering a retirement plan is not enough if plan sponsors want their participants to fully embrace it, according to a report from Arnerich Massena, Inc., “Retirement Plan Best Practices: Participant Education.”

The company notes that a study by the National Institute on Retirement Security found that the median retirement account balance is $3,000 for working-age households, and $12,000 for near-retirement households.

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Thus, Arnerich Massena says, education is critical to helping participants become aware of their plan and its critical value to them. “Combined with effective plan design and maintenance, education can play a significant role in improving participant outcomes,” the company says.

The company says the first step is to take a diagnostic review of existing educational services and tools, as well as the plan’s objectives and goals and problem areas among participants. Arnerich Massena says plans can work with their providers and advisers “to examine plan statistics like the participation rate, average deferral rate, asset allocations, usage rates of plan options and features, and average account balances.” In short, sponsors should find out whether participants are on track for a successful retirement.

Goals may include the following: increase participation in the plan, raise awareness and understanding of the plan, increase deferral rates, improve asset allocation, reduce financial stress and increase productivity, improve employee satisfaction and help employees plan for long-term retirement security.

By surveying participants, sponsors can find out what they would like from an educational program. It can also reveal participants’ level of investment and financial sophistication.

Next, sponsors should consider channels of communication, such as online interactive tools and webinars, paper and printed materials or in-person events. If participants are of various ages, several methods of delivery may make sense, the company says. Printed materials can include workbooks, guides, posters, flyers, table tents and newsletters. Electronic/online materials can include videos, audio presentations, websites and email. In-person education is also important, as participants nearly always say they prefer in-person education above all other methods—including one-on-one meetings with an adviser, not just group meetings.

Sponsors should also be mindful of targeting messages/education to various life stages. For those just starting out in their careers, they may want information on student debt, saving for a house or a car, investment basics and why saving for retirement is something they should start now. For those mid-career, they need help calculating a savings goal, understanding their investment strategy, and balancing various financial goals. For those nearing retirement, they need help planning retirement income, adjusting their investment strategy and understanding distribution options. For retirees, they need help with managing retirement income, estate planning, budgeting and minimum required distributions.

When designing educational materials, Arnerich Massena says, they should be easy to read with down-to-earth language—and even entertaining. The company suggests using characters and stories, being colorful, making it interactive and including examples.

To succeed at all of this, plan sponsors may want to work with their providers and/or advisers. It is also important for sponsors to measure how successful their educational programs are, and make changes as needed. They can do this by looking at online usage rates and surveying participants.

This report is one of a five-part series that Arnerich Massena issued on retirement best practices. Other topics included plan governance, plan design, investment menu construction and plan monitoring.

Administration June 25, 2018

2018 PSNC: Small Plans, Big Results

Creative and cost-efficient strategies to motivate employees at small companies to engage in their retirement plan.

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At the 2018 PLANSPONSOR National Conference, the 2018 PLANSPONSOR of the Year in the $10MM – $50MM category and two industry leaders offered pointers on how small retirement plans with a low budget and few staff can offer a best in class plan design.

Dan Peluse, director of retirement plan services at Wintrust Wealth Management pointed out stats from a 2017 Matthew Greenwald, American Center Investments survey called “Start Your Engines” as a framework for the panel discussion. He noted that survey respondents like employers to motivate them to plan for a successful retirement. For instance, eight in 10 participants want a nudge from their employers, plus pre-retirees would prefer a 3% match to a 3% increase.

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Cheryl Braun, director of human resources for United Hardware Distributing Co. explained the thought process behind the company’s successful plan design.  She said the company initially implemented auto-enrollment in 2008 at a 3% default deferral rate and after experiencing few opt-outs, raised the default to 6% in 2013. “We chose 6% because that’s the threshold that the company match is based on, and we want our employees to fully maximize their savings,” Braun said. “Because the plan matches 40% of 6% plus a discretionary contribution, we don’t feel the need to implement correlating auto-escalation. Instead we educate employees on utilizing the online feature where they can voluntarily elect to set up their own automatic increase.”

It used to be that, after the twice yearly mandatory education meetings, employees had to go online or make a phone call to sign up,” Braun said. “Now, there’s paper at the meeting to sign up to for auto escalation. Participants just have to sign and date it. Two-thirds of United Hardware’s 327 employees work at its distribution center in Milbank, South Dakota, in warehouse jobs heavy on physical labor. They don’t have computers they can go back to and log in, and many of them might not have that at home, either.

“We touch on different topics at the meetings, and we throw out our positive plan stats such as our average contribution which is 8%. Stats like that motivate those not contributing at that rate.  Plus the cost of the education programs is minimal compared to the benefits received. Another advantage is that our adviser has been consistent. Participants see the same consistent face every six months. They’ve built trust in that regard.”

Jonathon Schultheiss, head of corporate retirement division at Gate City Advisers recommended plan sponsors consider using a stretch match that simply raises participant contributions. Instead of offering 100% up to 3%, offer 50% of a 6% contribution, for example. “This is behavioral science. Plan participants want to get what is matched. They think, ‘What the employer matches is what I’ll do.’” And there is no additional cost to the employer.

Peluse said, “no two companies are the same demographically. Each has its own plan design challenges.”

Schultheiss described a strategy using gamification to win a plan over that would not use auto features. “We offered the opportunity for employees to receive a ticket for every increase they make in their plan. Every year at the benefits meeting we have about 100 changes. Participants who receive a ticket can win televisions, a half day PTO and more.”

A day of golf and lunch is offered to some plans that Peluse advises as an incentive to those who increase their automatic escalation. “There are many creative ways to get there,” he said.

 

 

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