Either can be an effective strategy, depending on what you’re trying to accomplish with your organization’s retirement plan.
A certain amount of ongoing communication is mandated, such as fee disclosure and other notices, depending upon your plan’s design. The minimal approach would be to send out what you are obligated to, in a format that meets the basic regulatory requirements, and to call it a day. The benefits of this approach are:
- It’s the least expensive approach;
- It requires the least amount of thought or work; and
- It will receive the least scrutiny from your plan participants.
If you have something to hide, this is a good strategy. For example, if your plan expenses are high or if you offer a safe harbor match you don’t want employees to take advantage of, burying the information in a wad of legal jargon might be the best way to go. You might not want to encourage employees to join the plan, because new participants start with such low balances that they don’t generate enough revenue sharing to offset the recordkeeping costs.
There is, however, another school of thought, one that believes operating a great retirement plan is both the right thing to do, and that it makes good economic sense. Arguments in favor of this approach include:
- Studies suggest employees engaged with their employer’s retirement plan are less likely to quit. Reducing turnover expense is obviously a good thing.
- Other studies suggest employees who feel they are on track to a financially secure future are less distracted in the workplace and consequently are more productive.
- Others point to the high costs associated with older workers remaining in the workplace; higher compensation and health care costs, and fewer opportunities to bring in new replacement talent. Many older workers would opt to retire earlier if they had the account balances necessary to support this.
- A successful retirement plan can be a powerful recruitment tool. You can make the case to a prospective hire that helping employees achieve financial independence is part of your organizational culture.
At the beginning of this article, we said that you can speak to your employees or at them. We addressed the “at” approach already – do the minimum to remain in compliance and that’s it.
Speaking “to” employees involves connecting with them and motivating them to take positive action. Saving for the future is a simple concept, but employer-sponsored retirement plans are anything but intuitive. From the name on down, they are off-putting. Why don’t we call these plans something user-friendly, rather than quote the Code section that governs them? We’ve written in the past about the idiotic jargon used. Why are payroll deduction deposits called, “contributions”? Contribution generally has the connotation of a donation – something you will never get back. Investments are confusing enough to most people without using words like “election” or “allocation.” How about “mix”? Without elaborating further, the point is that great communications are ones that are understandable to your audience. They should explain clearly:
- What is the reason they should take action?
- What specific action is suggested?
- Exactly how can that action be taken?
Break down barriers wherever possible. Make your communications relevant, understandable, and make it clear whether follow-up action is requested. Within an employee population, there may be the need to customize communications by sub-sets. For example, a hospital may have hundreds or thousands of employees with a very wide range of financial sophistication. Is it realistic to think that a one-size-fits-all communications program is going to be the most effective?
If you care about your employees’ future financial well-being, don’t be afraid to say so. Sincerity and concern are two powerful communications forces.
Communications programs should be based on needs. Identify weaknesses and address them. In this era of “big data” most recordkeepers can generate reports that will help identify needs. For example, do you have low participation in certain locations or in certain age or income groups? How do your contribution levels compare with those of your industry peers? Are your participants’ investments adequately diversified and risk-appropriate?
Summing it up, if you want your retirement plan to be great, you need to work at it. Identify needs and develop a thoughtful communications program to address them. Seek feedback from employees, measure improvements, and keep at it. Don’t be afraid to seek professional help, as specialized skill sets can make a big difference in effectiveness.
Jim Phillips, President of Retirement Resources, has been in the investment industry for more than 35 years, the past 18 of which have been focused in the area of qualified retirement plans. Jim worked for major national investment firms for 14 years before “going independent” in 1990. Jim is an Accredited Investment Fiduciary, has contributed to two books on 401(k), and his articles have been published in Defined Contribution Insights, PLANSPONSOR’s (b)lines and ASPPA’s 403(b) Advisor, and Jim is a RetireMentor on MarketWatch.com. His work has been acknowledged with multiple Signature Awards from the PSCA, he has been named to the 2012 and 2013 list of Top 100 Retirement Plan Advisers, by PLANADVISER Magazine, and he was a finalist in 2012 for the Morningstar/ASPPA 401(k) Leadership Award. Jim has been a frequent speaker at national conferences, including SPARK, ASPPA, AAO and the PLANSPONSOR and PLANADVISER National Conferences.
Patrick McGinn, CFA, Vice President of Retirement Resources, is a CFA charterholder and has been in the securities industry since 1993. In addition to the Chartered Financial Analyst designation, he is an Accredited Investment Fiduciary and a member of the Boston Security Analyst Society. Together with Jim, Patrick has co-authored a number of articles which have been published in industry publications on topics about managing successful 401(k) and 403(b) plans. His work has been acknowledged with multiple Signature Awards from the PSCA, and he has been named to the 2012 and 2013 list of Top 100 Retirement Plan Advisors, by PLANADVISER Magazine. He was a finalist in 2012 for the Morningstar/ASPPA 401(k) Leadership Award.
NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.Any opinions of the author(s) do not necessarily reflect the stance of Asset International or its affiliates.