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Financial Education for Your 401k Plan

By Russ McAlmond CFP,ChFC,CFS,CTFA,CISP,RFC and President, Evergreen Capital Management Inc. which was founded on the principle that most investors want their investment advice and choice of investments from an objective source. You may reach him at 503.223.8880 or at russ@evergreencap.com.

    

Many companies that have 401k plans go along with the generic or company specific educational materials that are provided by their 401k providers. The thinking seems to be that your employees will read the statement stuffers or go online and become truly educated and responsible investors. But after years to this type of approach, the vast majority (89 percent) of American workers describe their personal knowledge of investing or saving for retirement as less than comprehensive, and nearly half (43 percent) state they possess no better than limited knowledge.1

Are you really doing what is best for your employees? After all, isn't a person's 401k plan a very important part of their overall retirement planning? The personal savings rate in America is staggeringly low compared to a country like Japan which means, for many people, the money they set aside in their 401k plans will be one of their main sources for retirement income. How fast that money grows and how much will be there for the employee at retirement is dependent on the employee making wise investment decisions.

Are your employees really ready to take on the important responsibility of choosing their investments by reading a website?

Companies and their departments that have responsibility for the 401k plan need to become more proactive about helping their employees be able to make good decisions with their 401k plan options. This does not mean relying on passive statement stuffers and websites, but by bringing in qualified professionals to teach employees about their specific investment options and what effect is has on their retirement income. When asked, 79 percent of those polled prefer help from a financial professional. Only 21 percent say they will do it all on their own.1 In another study, 64% of participants who said it was "very important" for their employers to provide access to investment advice.2

Yes, this may take some time and cost a little more but if you agree that this money will be important for the quality of life for your employees then it is certainly worth it.

At our company, we tailor the presentation to apply to the choices your company has and, most importantly, talk about the different risk factors with each choice in your 401k plan. We make sure our instructors are licensed Certified Financial Planners or Chartered Financial Consultants that can answer any financial questions your employees may have. The instructor should also be totally independent of the company and be able to be honest and frank about the risks of investing in your company's stock if that option is available.

Taking your 401k plan into the 21st Century

Companies chose to provide 401k plans to help their employees save for retirement. As the investment world has become more complex and individuals are being reminded that markets go down as well as up, it is time to become proactive about helping them make good decisions. Although websites and mailing stuffers can be helpful, a live Certified Financial Planner who takes them step-by-step through their options and explains the risks can be invaluable. Your employees will know and appreciate that you are taking this extra measure to make sure they are successful in making these very important decisions about their future.

1. Survey conducted by Mathew Greenwald & Associates, Inc. for Employee Benefit Research Institute (EBRI) and the American Savings Education Council (ASEC) and published in April 2003.
2. Research published by the SPARK Research Group, May 2003.

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