State DC Plan Sponsors Offer Financial Education

According to a working paper issued by the National Bureau of Economic Research (NBER), the most popular option for financial education or advice is one-on-one telephone consultations. The next most popular options, available to over 90% of the surveyed respondents include group seminars, periodic newsletters, live webinars, and new hire information packets.   

Additionally, approximately three-quarters of active participants in these plans have access to third-party online financial advice. One-on-one in person consultations and internet options (financial education web component and online videos) are offered to little more than half of actives. While more than half the plans use e-mails, it only equates to 19% of the active member population, indicating smaller plans are using this option more than larger plans, the paper’s authors said. The least popular approach to financial education and advice among state DC and hybrid plans is social media.  

A few plans had several different providers creating their financial education programs. For example, one firm designed their workshops, another firm handled communications and a third firm provided the advice.   

According to the survey results, most types of educational offerings cover both plan specific and general financial knowledge topics. In most cases, the most popular plan-specific topic is a plan overview, with plan investment options and plan distribution options competing for second. Third-party online advice is the only educational program that is more likely to cover plan investment options and distribution options than provide a plan overview.   

Regarding general financial topics, retirement planning dominates all other topics in all but one case, with diversification, overview of assets and basic investment principles generally ranking second or third. Other topics that are covered by some plans but are not as popular include debt management, inflation, compound interest, and budgeting.   

Roughly 80% of DC and hybrid plans surveyed measure the success of their financial education programs. Among those that do, about 90% use surveys and attendance records to assess performance. In terms of following actual member decisions made, about 40% of plans track default rates, and 35% follow actual participant behavior. Only two plans have employed an experimental field study to test for statistically significant changes in behaviors.  

As more and more public pension systems are shifting away from a defined-benefit-only framework, the complexity of the financial decisions facing public employees is increasing. This raises some concerns about the financial literacy of participants and their ability to make informed decisions. Paper authors Julie Agnew and Joshua Hurwitz noted that surveys addressing financial education in private plans are available, but little is known about what types of education and advice are offered in public plans. The paper presents results from the first National Public Pension Plan Financial Education Survey.  

The paper also discusses why financial literacy matters; documents the lack of financial literacy in the U.S. and how it may affect financial decisions; gives a short overview of the literature related to the effectiveness of financial education and advice associated with retirement plans; and provides details behind the recent public sector shift away from defined-benefit (DB)-only retirement systems.