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advocacy community education
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industry that competes for talent. Some
studies have shown that quality of
401(k) plan is more important than
amount of vacation time for employees.
Once a program has been bench-
marked, the company has a valuable
tool to renegotiate with the current ven-
dor and/or decide to go out to bid. You
can also quantify the advisors' com-
pensation to see if they are in line with
the industry based on the services they
provide and the associated fees. Soon
there will be mandated fee disclosure
on all of these items, but you can get
ahead of the parade by making sure
that your clients are benchmarking
now. Information on benchmarking is
widely available online.
3. Develop an Education Policy
Statement (EPS).
One of the newest 401(k) trends is for
plans to establish an Education Policy
Statement (EPS). For years, most par-
ticipants have been left to their own
devices when it comes to investment
education and fund analysis. While
there has always been an initial enroll-
ment meeting where everything is
explained to groups of participants and
sometimes there have been follow-up
meetings, there has never been a con-
sistent focus on education. As a result,
too many people jump around from
fund to fund chasing performance and
never develop a well-thought-out strat-
egy based on their goals, risk toler-
ance, and other factors.
Worse, there are participants who get
discouraged by market performance
and shift 100 percent to money market
or stable value at the bottom of the
market, only to jump back in 100 per-
cent when there has been a long peri-
od of good performance. This is the
worst of both worlds and has led to a
growing number of participants (and
their attorneys) who later come back to
the employer and complain that they
weren't educated properly.
A good EPS will quantify the education
objectives, describe who is responsi-
ble, and establish measurements to
define the success of the program. By
quantifying the roles and responsibili-
ties of all parties so that everyone
knows his or her duty, the plan spon-
sor, vendor, and advisor will each know
his or her specific role and can be held
accountable for results.
The most important section of the EPS
is the performance standards. This
includes:
The number and quality of group par-
ticipant seminars.
Meetings to familiarize participants
with the available tools, website
resources, and collateral materials.
(In most cases, the tools and educa-
tion are available, but participants
don't understand where they are or
how to use them.)
Targeted and personalized commu-
nications using print, digital, and
audio resources. (Materials for a 25-
year-old and a 55-year-old will be
vastly different, for instance.)
Retirement income planning/transi-
tion services for those approaching
retirement.
A monitoring system to verify that all
of the above are being accom-
plished. (This can include a grading
system to show where there is need
for improvement.)
Companies that have an EPS have
shown a remarkable improvement in
participation, investment returns, and
an appreciation for the benefits being
provided. And, except for the time
investment, there is little or no cost.
When you combine the investment pol-
icy statement with benchmarking and
an education policy statement, you
have a powerful approach for your
clients and their participants. These
three items are the keys to a success-
ful 401(k) plan.
Steven E. Parmelee is
the
president
of
Westport
Benefits
Group, a company
that specializes in
helping 401(k) and
other qualified plan
sponsors understand their fiduciary roles
and obligations. He can be reached at
sep@westportbenefitsgroup.com or
203-227-3738.
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