401k Education: GIVING EMPLOYEES A VOICE

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1 401k Education: GIVING EMPLOYEES A VOICE By Mark Zoril An overview of how employers can design a retirement plan communication program that will help meet the needs of their employees.

2 Contents Survey methodology Retirement Planning: Challenges and Changes The Impact of Input Levels of Risk Acceptance Retirement Readiness How do employees plan? How employees want to learn Lessons & Implications About the Author Mark Zoril, a 20 year veteran of working directly with employers, is the Founder of PlanVision. PlanVision helps small to mid- sized employers improve their workplace rebrement plan by reducing unnecessary plan costs and enhancing employee communicabon. 2 Title of the book

3 Communication & Readiness T he notion of retirement readiness is emerging in the Defined Contribution industry. Employer-based retirement plans are expected to play a key role in helping people of all ages and incomes pursue more financial freedom and flexibility in their mature years. While this would appear to be an appealing development, it is clear that many people will face financial challenges in their retirement. Some more so than others. As most human resources and benefits professional know, one of the most significant workplace challenges can be providing guidance and assistance to the employees, i.e. benefit education and communication. We are living longer than ever and are more healthy now than we ve ever been well into our senior years. This longevity bonus offers the potential for an enhanced quality of life. The landscape of how we support our retirement is changing. Many defined pension plans, which historically provided income for people throughout their retirement years, have given way to defined contribution-style plans like 401ks. In addition, Social Security and Medicare face funding challenges and will likely be modified for future generations. As such, the responsibility for managing and planning our financial future falls on the individual employee, many of whom are not prepared or equipped to handle this. So where does that leave the plan sponsor? What should they be doing? What is the best way for them to help the employees at their company? What can they realistically do to help employees become ready for retirement? These are the questions we set out to answer with this study. 3 How Employees Want to Learn About Retirement

4 About the Study PlanVision interacts with all newly eligible employees at its client firms. The interaction is typically a 15 to 30 minute session that is done in person, by phone, or with a video conference session. An employee can select a time at their convenience for enrollment, either during work hours or evenings. A professional advisor describes the plan, reviews the investment options, and helps the participant complete the setup of their account. During this time there is no selling of any investment products and PlanVision is not compensated in any way based upon the decisions of the employee. A s a key part of this process, PlanVision administers a survey with each participant. The survey takes anywhere from 2 to 4 minutes to complete. The intention of the survey is to allow the employee to have more control over how they receive service and guidance on the plan as they enroll. Employees can provide information on their experience with employerbased retirement plans, investments, and advisors. They can indicate how far away they think they are from retirement and how conservatively or aggressively they would like to invest. Information collected over 12 months From both for profit and non-profit employers Upper Midwest survey questions, depending on responses 4 How Employees Want to Learn About Retirement

5 Employees Could Use Some Help Employees need help, but not necessarily everyone wants help picking investments. A full 96% indicated that they did want help completing enrollment, reviewing investments, or selecting the amount to save. 10% admitted to having no understanding of investments at all. Exactly 34% indicated that they have a limited understanding of investments, and another 34% indicated that they understand investments reasonably well but would like assistance. Where Employees Currently Seek Advice About a third of enrollees do receive guidance from a financial advisor. However, only 33% of those working with a financial advisor would seek out their assistance with the selections on the retirement plan. For all the other employees, a full 93% did want recommendations from PlanVision in making suggestions on their investments for the plan. 5 How Employees Want to Learn About Retirement

6 Are you on track for re.rement? 58% of respondents said they did not know if they were on track for rebrement, or were concerned they didn t have enough saved. Of those, 70% did want to run a personalized rebrement plan at some point in the future. Eighteen percent felt like they were on track, and 23% felt like it was too far away to know if they were on track yet. For those that are on track for rebrement, 48% had planned with an advisor, 36% had planned on their own, and 15% did not plan at all but just felt like they were on track. 6 How Employees Want to Learn About Retirement

7 How Risky Are Employees Willing to Be? For risk tolerance, 80% of enrollees indicated that they were anywhere from moderate to aggressive investors. Also, the largest single category were moderately aggressive investors, which made up 33% of all investors. Only 18% identified as conservative or moderately conservative investors. In addition, 6% of those that indicated that they were moderate to aggressive investors indicated that they would either not stay the course or may not stay the course in a market sell off. 7 How Employees Want to Learn About Retirement

8 UNDERSTANDING FEE NUMBERS 95% indicate that they understand their Almost all observers would agree that fees matter, however most would also agree that plan participants have a very limited understanding of fees. plan fees after the explanation by a provider. 95% of those also understand how fees can impact their long-term returns. But there is good news: our survey shows that if plan participants have their plan fees explained by a service provider in an easy-to-understand way, nearly all of them indicate that they understand the fees. In addition, of those who understand plan fees, the vast majority (95%) also understand how fees could impact their long term returns. This is a good sign, and a great start toward helping employees understand their retirement benefits. This should also have a spillover effect and help people become better consumers of investment products on their own. 8 How Employees Want to Learn About Retirement

9 Lessons & Implications This information is unique in the sense that it is captured directly from plan participants when they are enrolling. They can essentially establish their own communication and education program. They can provide feedback about where they stand for the future and what type of guidance and service they would like to receive on their benefits. Employees are looking for guidance Employees can understand plan fees if they are presented in a clear and easy to understand manner and are provided with some background on the fees. Most investors are willing to include volatile investments in their portfolio. They understand the long-term nature of the investment and the trade off of losing money in the short run to have more in their retirement account. Very few people identify themselves as pure do it yourself investors. Most would prefer to receive some guidance at enrollment in understanding the benefit and completing the enrollment process. Most people would prefer to get the enrollment done without deliberating too much on the process. This is indicated by a majority who work with an advisor but will not seek their guidance on the enrollment process. Of those that are not do it yourself investors, a little over 50% indicate that they would like some education and guidance through their employer and they would like it equally on planning for retirement and on general financial planning topics as well. 9 How Employees Want to Learn About Retirement

10 One on One Guidance Preferred Almost all respondents prefer one on one guidance. Interestingly enough, more respondents are interested in small group learning opportunities than webinars. Very few are interested in seminar type instruction if given other options. A majority of respondents indicated that they don t really know if they will have enough for retirement and a full 70% of those polled would like to run a retirement analysis if it was offered by their employer. For those that are on track for retirement, almost 50% had used an advisor, but another 50% had not. They had done it on their own or don t feel like they need a plan. Implications of the Data The notion of retirement readiness is emerging in the defined contribution industry. Employer-based retirement plans are expected to play a key role in helping people of all types pursue more flexibility in their mature years. Moving past the Department of Labor Fee Disclosure requirements, employers and service providers can take the initiative to help their employees understand their plan fees with a simplified sheet that explains the fees. However, it should also provide some limited explanation on where the fees for each provider go. Most people appear to be investing using appropriate long term investments that provide the best opportunity for growth. Far and away, most plan participants would prefer to receive guidance on a one on one basis. This is not necessarily too surprising. However, seminars or classroom education is the least interesting to employees. Most people would appreciate personal guidance at the time of enrollment. It s also clear that a minority of employees do not want, or would not necessarily benefit from, workplace communication on an ongoing basis. A small minority do not need it all and others receive it from sources away from work. 10 How Employees Want to Learn About Retirement

11 Please contact Mark Zoril to learn how to assess what kind of guidance your employees want on your 401k plan and how you can provide it to them. Call: Learn more about SurveyGizmo, the easy-to-use yet powerful software that Mark used to conduct his study. Visit our website: