Helping Participants Understand the Benefits of Their Retirement Plan
Question: How can I use my retirement plan enrollment meetings to help participants understand the benefits of investing in their retirement plan?
Answer: We find that many employers primarily use enrollment meetings to communicate plan specifics and options. While plan-specific information is important, employees need to understand why saving for their retirement is crucial. Studies show that only two in every 100 people are financially secure in retirement. It is clear that employees need more education and assistance when it comes to retirement planning.
As a plan sponsor, you have an obligation to help your employees understand the need to save for retirement and how your specific retirement plan is a vehicle to help them achieve a financially secure retirement.
We recommend changing the focus of the enrollment meetings from plan communication to retirement planning education. Market these meetings to employees as their opportunity to "enroll in a financially secure future."
Enrollment meetings should address four key areas:
- How much to save. Although this will be different for each participant based on many factors, including their current account balance, their current age and when they plan on retiring, it is useful to show examples of how much an average employee needs to be saving to fund an average retirement lifestyle. By showing several different scenarios for various ages and incomes, you can show employees the importance of participating in the plan and putting in as much money as they can.
- How to maximize their retirement savings. Show the benefits of participating in the retirement plan with pre-tax dollars. Basic investment concepts such as dollar-cost averaging, compound interest, and the benefits of tax deferral show participants how their money can grow. Discuss the annual contribution limits for retirement plans so employees know how much they can put in.
- How to make informed asset allocation decisions. Review the basic asset classes and investment characteristics; risk tolerance, time horizon and diversification in order to help participants determine the right asset mix for their retirement funds.
- Plan specifics. Communicate the specific investment options offered in the retirement plan. Be sure that participants understand the risks and rewards associated with each fund choice. Participants will be better prepared to make informed investment decisions and maximize the options available to them.
You may need to make enrollment meetings longer or present them as a series in order to cover all of the essential retirement planning concepts. By educating participants so they understand the need to save, you are likely to see increased participation rates and deferral percentages, as well as a decrease in fiduciary risk.
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The Ask Financial Finesse Q&A service is designed to provide general information on trends and developments in workplace financial education programs and participant education strategies. Due to the complex nature of financial benefits and/or workplace financial issues, the information contained in this document is not to be construed as advice. If you have questions about your specific situation, you, may want to contact a financial education consultant. Due to volume, Financial Finesse will be unable to answer all submitted questions.
