Feature:Bored of Education

Participant education comes up short

In spite of the hundreds of millions of dollars their employers spend on education, participants appear more confused than ever about even the most basic aspects of their 401(k) plans. According to separate studies conducted recently by the Employee Benefit Research Institute and CIGNA Retirement & Investment Services, 47% of participants think they are contributing the maximum, but only 11% actually are doing so. Not that they are complacent about it. The CIGNA study found that a mere 36% of survey respondents said they regularly receive retirement planning communication from their employers, 15% get such information only when they ask for it, and a full third said they get retirement information from their employers "once in a blue moon." Not surprisingly, 41% of participants give their employers a grade of C or lower for the quality of education and information they receive.

"We know what the results have been, and it's not a picture any of us in the industry can be proud of," says Diane Talbot, director of 401(k) product management at Merrill Lynch. "We've spent a lot of money, but I don't think we've accomplished what we've set out to do. There has to be a fundamental shift in the paradigm around communication and education."

"The data make it abundantly clear that a new educational paradigm is needed that matches the way in which participants like to learn," echoes Warren Cormier, co-chair of the Society of Professional Administrators and Recordkeepers (SPARK)   Research Group, which has conducted a series of in-depth studies of participant education. "Otherwise, it's reasonable to expect that employee education will continue to receive low satisfaction scores among participants and plan sponsors."

For plan sponsors, the need is clearer than ever. PLANSPONSOR's 2002 Defined Contribution Services Survey of more than 2,800 401(k) plans found that average plan participation rates dipped in every market segment, even with no apparent change in company match. Overall, participation rates hovered just below 75%, a decline of about 2.5 percentage points compared with last year's survey—and large plans saw their average participation rates drop by nearly six percentage points. That same survey found that participant communications materials ranked eighth on a list of nine key participant services by plan sponsors. In fact, the only service criterion ranked lower by plan sponsor respondents was "overall participant education program."

"For a long time, the increases [in investment markets] made it easy for participants to defer and watch their money grow," notes Nancy Gerseny, former vice president of corporate marketing at SunTrust Banks. "It didn't matter what fund you were in but, in flat or negative markets, we have to take a more aggressive approach to changing participants' behavior."