The National Association of Government Defined Contribution Administrators (NAGDCA) has published “A Guide to Communications/Participant Education.”
NAGDCA says participants should understand the context of their defined contribution (DC) plan. Will it be their only savings vehicle, or do they also have a defined benefit (DB) plan, and will they receive Social Security? Plan sponsors should also make sure participants understand that the amount they contribute and the amount of time that they contribute could have more of an impact than how they invest, according to the guide.
NAGDCA recommends participant communications/education includes information about the difference between Roth and non-Roth accounts and how to make the best decision about which way to save their money. Plan participants should also be aware of the Saver’s Credit tax credit for eligible contributions to an IRA or employer-sponsored retirement plan, should understand their contribution limits under the plan, and should be aware of any employer matching contributions.
Other elements of communications materials, according to NAGDCA, include:
Investments and Investment Concepts – Individuals may experience some anxiety around defined contribution plans because they don’t feel they have the information to make good investment decisions; plan sponsors should communicate that the essential principles of investing are not that complicated. Participants should maintain a diversified portfolio matched to his or her risk tolerance and investment time horizon; the asset allocation strategy can also be modified over time as their situation changes.
Fees and Expenses – Fee disclosure is a challenging responsibility, but it is best practice to disclose all fees clearly and regularly.
Access to Your Account While Working – Clear and straightforward language should be used to help participants understand the pros and cons of loans and hardship withdrawals.
Distribution Phase – As a best practice, resources should be developed to help participants understand the options in the plan for converting savings into lifetime income.
Beneficiaries – Participants should not just designate beneficiaries at the time they enroll, but should also be reminded to keep this information updated.
Additional Important Communication Topics – Annual updates and regulatory changes, and summary plan description (SPD).
More ‘best practices’ for education, plan design, plan administration and other areas are available on the NAGDCA website.