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advocacy community education
ne of the major cornerstones of
our society is public education.
Regardless of race, religion,
creed, gender, income, or national ori-
gin, children from kindergarten through
the 12th grade are entitled to a free
education because our society values
education. Education helps individuals
attain intellectual, physical, and emo-
tional progress. Public education offers
no guarantees, but it can offer a lot of
progress as human beings. The same
can be said of offering investment edu-
cation to participants enrolled in retire-
ment plans.
When it comes to being a retirement
plan financial advisor, many advisors
concentrate on the concepts that aren't
as important as they seem, such as
picking out mutual funds or making
glossy marketing brochures. The most
important role a financial advisor has in
working with a retirement plan is mini-
mizing the fiduciary liability that a plan
sponsor and the plan trustees have
when handling the process of plan
investments. While much has been
written about the needs of developing
an investment policy statement (IPS)
and reviewing the plan investments
based on that IPS, very little attention
is paid to the ongoing process of pro-
viding education to participants.
Let's look at the role that "participant
education" has in participant-directed
401(k) plans. Participant-directed
401(k) plans that meet the require-
ments of ERISA 404(c) offer the plan
sponsors some liability protection
based on a participant's gains or loss-
es on his or her account when he or
she directs his or her own investments.
Participant education can be used as a
tool to help plan sponsors minimize
their liability under 404(c).
There is nothing in the statute or in the
regulations that actually requires the
plan sponsor and/or the plan's financial
advisor to offer education to partici-
pants. However, under Department of
Labor (DOL) regulations issued under
ERISA 404(c), in order for plan partic-
ipants to exercise control for purposes
of making it a participant-directed plan,
the fiduciaries must provide sufficient
information to participants so that they
can make informed decisions. The suf-
ficient information might comprise a
description of the investment alterna-
tives available under the plan, includ-
ing a general description of the invest-
ment objectives and risk/return charac-
teristics of each alternative (including
type and diversification of assets in the
Retirement Plan Alert
The Case for Investment Education
By David M. Snetro, Member, CSCPA Employee Benefit Plans Special Interest Group and Ary Rosenbaum, Esq.