Participant Education Still Important in Automatic Era

Although the Pension Protection Act has officially ushered in a wave of automation to retirement plans, education is still a vital part of a successful 401(k) and advisers can help plan sponsors measure the effects of their education campaigns.

In fact, despite this being the era of auto enrollment, “I believe nothing has changed,” Sheila Wales, Vice President and National Director of Education Services at Transamerica Retirement Services; “We need to educate plan sponsors that participant education is still important.”

Automation is promoting defaulting into the retirement plan with a 3% deferral, but the industry knows that is not enough to accumulate a proper retirement savings, Wales explained. Therefore, it is important to educate people to stay in the plan and hopefully they will take more of an interest in their employer’s offering.

John Mott, Corporate Client Group Director & Senior 401(k) Advisory Member, at Smith Barney, agreed with Wales, asserting that with a slowdown in the economy, increases in the cost of living, participants need to be engaged to understand why they should save and what to save. Although automatic enrollment can be a strong tool, Phyllis Klein of CAPTRUST Advisors also commented that people typically targeted in default funds are often the most transient part of the workforce, which means they are most likely to cash out when they leave the firm.

Companies need to take the initiative to educate employees, but must figure out what the best way to engage their employee base is – whatever specific educational tool a plan chooses to use, the effort won’t be easy, Mott said. Klein suggested that the key to connecting to participants is to be able to act in the moment the education is being delivered.

“To get them to make a change, it has to be high touch,” Mott continued. “With some people, you have to spoon feed them.”

Measuring Results

Although education is important, it is equally important not just to offer it, but to benchmark the plan and participants and understand who is doing what, Mott said.

If a sponsor hasn’t yet spoken to the retirement plan provider about getting plan data, he should, Klein said. Wales said that Transamerica is able to offer impact statements that show non-participants what the benefits would be if they were to join the retirement plan.

However, Klein commented, the numbers are only worthwhile if you take the time to look at them – which can be difficult for a plan sponsor wearing a lot of hats, but is something the adviser can help with.

Case Study

Motorola’s director of Global Rewards, Randy Boldt, shared his experiences with educating an auto-enrolled participant base after the company moved to auto-enrollment seven years ago. He said the company tried various meeting types – live meetings, webinars, and workshops – to see how they could best engage their participants.

According to Boldt, Motorola had 95% participation before instituting the auto enrollment. After, 54% of new hires remained at the 5% default, 30% increased their deferral, 6% decreased their savings and 10% opted out. Non-participants now get an annual targeted communication from the company, as do those who are not saving up to the company match level and those who are only saving between 5% and 8% of their salary.

When examining a participant communication campaign, Boldt said he asks the following questions: is the communication personable, it is easy to enroll, does it offer a call to action, and how many times are the participants going to be touched during the year.