401k Enrollment: Is a Meeting or E-Delivery Best For Your Small Business 401k Plan?
When a small business offers a 401k plan, its employees often need some sort of 401k education in order to make the two primary investing decisions applicable to 401k participation – “how much should I save?” and “where should I invest?”
In the past, this education has been most commonly delivered in 401k enrollment meetings led by a company representative or professional financial advisor. However, this is changing. A growing number of small businesses are delivering 401k investment education to employees online or by e-mail (i.e., e-delivery).
Why the change? Today’s technology and investment products make 401k investing decisions easier than ever for employees. Most, if not all, 401k providers offer online tools to keep retirement savings on track while new 401k investment products can make 401k investing decisions simple for even the most inexperienced investor. An e-delivery approach is often less costly too.
401k investing education should be viewed as a service. Like any 401k service, it should offer a return on investment (ROI) for plan participants. Are 401k enrollment meetings still the best method for delivering investing education to your 401k participants? Making this judgment is not hard - there are only a few factors to consider.
What topics are covered during 401k investing education?
The purpose of this education is to help employees make informed 401k decisions. Key topics include:
- Savings basics - To demonstrate the importance of saving early
- Plan features – To summarize the key features of the company’s 401k plan
- Tax benefits – To explain the different tax benefits available to 401k savers
- Investing concepts – To explain mutual fund asset classes and asset allocation strategies
401k participants are most commonly confused about asset allocation. Fortunately, today’s investment products are making asset allocation easier than ever.
Does my company need a 401k enrollment meeting?
Most 401k providers just offer one method for delivering 401k investment education or upcharges for enrollment meetings. That said, you’re probably choosing a method when you choose a 401k provider – that’s something to keep in mind when shopping around. To decide if your plan needs formal enrollment meetings, I recommend you consider the following factors:
- Fees – Small businesses have a fiduciary responsibility to pay only reasonable 401k fees for necessary plan services. Do enrollment meetings add fees to the plan over e-delivery? If so how much?
- Fund lineup – Does your 401k plan offer Target Date Funds TDFs or Target Risk Funds (TRFs), or custom TDFs or TRFs constructed by a professional financial advisor? Most 401k investors have no idea how to diversify their account using an asset allocation strategy. TDFs and TRF make asset allocation simple – possibly eliminating the need for a confusing explanation of the concept in an enrollment meeting.
- Online Tools – Does your 401k provider offer calculators and/or videos that sufficiently guide participant investing decisions? If yes, an enrollment meeting may not be necessary.
- Employee demographics – What sort of education do your employees respond to best? While Millennials might prefer e-delivery of 401k investment education, Baby Boomers might prefer a more interactive enrollment meeting.
401k investment education is important!
Too often, 401k participants have no idea how much they should be saving for retirement or where to invest their account. Fortunately, new technology and investment products are making these choices easier than ever.
These developments are making it easier for small businesses to deliver 401k investment education to its employees too. 401k fiduciaries should evaluate whether the e-delivery of this information is now the best choice for their plan.
About Eric Droblyen
Eric Droblyen began his career as an ERISA compliance specialist with Charles Schwab in the mid-1990s. His keen grasp on 401k plan administration and compliance matters has made Eric a sought after speaker. He has delivered presentations at a number of events, including the American Society of Pension Professionals and Actuaries (ASPPA) Annual Conference. As President and CEO of Employee Fiduciary, Eric is responsible for all aspects of the company’s operations and service delivery.