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401(k), Live, MassTLC Retirement Plan, retirement plan

401(k) Plan Education Is More Important Than Ever in These Uncertain Times

As uncertainty persists — in the economy, in financial markets, and on the geopolitical stage — your employees may have worries about their retirement savings. They likely have questions, like:

  • Should I enroll in the company retirement plan?
  • How much should I be saving for retirement?
  • Where should I be investing my savings right now?
  • If I’m already saving enough to get the employer match, why do I need to save more?

Educating your employees about the benefits of your company’s retirement plan, and how to make the most of their savings to achieve their goals for the future, is vital when it comes to increasing participation, deferrals, and plan engagement, as well as helping improve retirement readiness across the board. April is Financial Literacy Month — a month dedicated to educating individuals about the importance of saving for future financial security. As such, it’s an appropriate time to review your retirement plan education efforts and assess how you can help your workforce improve their financial well-being by encouraging them to take control of their savings for the future.

Common employee misconceptions about retirement savings

When it comes to employees’ perceptions of their 401(k) plan at work, misconceptions abound. For instance, they often think that creating a retirement portfolio made up of the “right” mix of investments is the key to successfully achieving their financial goals. The problem with this belief, besides that it’s a myth, is that employees tend to agonize over their retirement investing decisions, typically to the point of analysis paralysis. This causes them to do nothing and simply rely on the plan’s default investment option, or choose the wrong types of investments for their specific situation and goals.

“I’ve always used this adage with participants: ‘You don’t invest your way to retirement; you save your way to retirement,’” said Rob Raphael, AIF®, CPFA, and Co-Founder and Managing Principal at SCS Retirement, a retirement plan consulting and wealth management firm based in Bellevue, WA that partners with WTIA on its multiple-employer plan (MEP) offering.

“Retirement plan participants want to focus on investing, and so they get wrapped up in thinking about the markets. The truth is, the biggest indicator of success is not where they invest, but how much they’re putting into the plan. That can be hard for participants to grasp, because they have a finite amount of money coming in,” Rob added. “It’s a big reason why participant education is so important. It’s an opportunity to help participants understand the significance of saving and how much to save, and how this step, which is entirely within their control, can help them successfully reach their retirement goals.”

Employees also believe they’re saving enough for retirement if they’re contributing enough to the plan to be eligible to receive the employer match. That isn’t always the case, however. Just because they’re enrolled in the plan doesn’t mean they’re on a path to success.  “A lot of times, employees will tell us, ‘I’m maxing out the plan,’” Rob noted. “What they mean is they’re saving enough to get matching contributions from the employer. That’s not the same as maxing out their contributions.”

Indeed, there’s a big difference between an employee who’s contributing 3% of their salary to get their employer match, and one who’s “maxing out” their savings. To do so, an employee would need to save up to the maximum annual amount allowed by the IRS. In 2022, the contribution limit for 401(k)s and similar workplace plans is $20,500; those aged 50 and over can contribute an additional $6,500 (for a total of $27,000).

These are just a few of the misconceptions employees have about workplace retirement plans. Participant education is vital to busting these common 401(k) plan myths and others, and to helping employees get on track to achieve financial security in retirement.

Bridging the education gap

Your employees don’t know what they don’t know. So it’s up to you, with assistance from your plan’s education specialist, to help them understand how your 401(k) plan works and how to maximize their savings.

Generally, these communications are best received once an employee has been auto-enrolled in the plan or has made the decision to enroll on their own. It can be helpful to survey participants to discover what their biggest challenges are and what they most want to know when it comes to saving for retirement so you can target your education efforts to their unique needs.

The survey might ask questions such as:

  • What is the biggest barrier to knowing if you’re on track to reach your retirement goals?
  • How would you rank your understanding of your 401(k) benefits?
  • What types of communications would be helpful to improve your understanding of the plan?
  • What format would you like to receive those communications in, i.e., email, newsletter, in-person sessions, Zoom meetings, website, etc.

In our experience, the majority of participants prefer one-on-one meetings, where they can get personalized guidance from a financial professional who can help them understand how to make the most of the plan and prepare to retire when and how they want.

Additionally, since many employees are still working remotely, it can be challenging to incentivize them to attend a group meeting about the plan, especially in a virtual setting. That said, raffles and other giveaways can be effective when it comes to enticing employees to come and learn about plan benefits, particularly if accompanied by a strong communications strategy that includes frequent emails and reminders.

Segmented campaigns that target specific employee demographics, such as early career savers and those nearing retirement, can also be an effective way to improve engagement and outcomes. “We recommend appealing to employees getting into the plan and those getting out of it because these are the groups where education is most likely to gain a foothold and there is the greatest opportunity to move the needle,” said Brady McIntyre, financial advisor and education specialist at SCS Retirement.

“For early-career employees, education efforts should center on helping them understand the benefits and advantages of getting into the plan, and saving as much as they can as soon as they can. Late-career employees want to make saving and planning for retirement a priority, but they likely have questions about how to maximize Social Security, for instance, and whether to keep their money in the plan or withdraw it at retirement. These are the groups that need targeted education and guidance, and as a result, they’re likely to be the most receptive to it,” Brady added.

As financial markets continue to be volatile, now may be a good time to review your 401(k) plan education strategy, as participants are likely seeking guidance on how to manage their retirement savings and investments amid a market downturn. WTIA and SCS Retirement can help participants make sense of what’s happening in the markets and in the economy, and assist you in providing the education they need to make informed decisions about their savings strategies for the future.

Learn more about the MassTLC Member 401(k) plan here


This post was originally published on the WTIA blog.

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