The Ideal 401(k) Plan SM 9-10 Interactive Participant Education and Managed Participant Choice Savant Engaged Participant Education The following is the last in a series of six Savant position papers. The mission of this series is to enable managers to aspire to excellence as investment stewards of their employees retirement plan assets. This edition will provide you with the tools and techniques necessary to roll out a quality interactive education platform and help your participants make informed investment decisions. A plan s success can easily be determined by the endorsement of the participant. If employees are taking full advantage of the benefits offered, it typically means they are comfortable with the provider and investment options, and they trust their plan fiduciary has their best interest in mind. www.savantcapital.com/ideal401k
9 Interactive Participant Education As a plan sponsor, you may have already designed an optimal plan with a great technology platform, fiduciary protection, first-class investment options, and participant success tools. However, if no one knows how to use them, your plan objectives will fail. To build an Ideal 401(k) SM plan, you must have a well-designed education program in place. The goal of an Ideal Education Platform is to offer participants a comprehensive educational kit and ongoing communication that will provide them with multiple learning opportunities. This should be customized so that it is accessible to employees at every stage of the process. Your company demographics will dictate the most effective education platform and delivery mechanism for your needs. Deliverables The goal of Interactive Participant Education is to educate employees on their terms, in formats such as: Group meetings One-on-one meetings Webinars Written materials Newsletters and blogs Turn-key election forms The four stages of the education process are: 1. Initial plan rollout 2. One-on-one follow-up meetings 3. Annual reviews 4. Ongoing learning opportunities
Initial Plan Rollout Group Enrollment and Conversion Announcement Meetings The first step in the plan conversion process is an announcement meeting. Once you have agreed to change providers and sign the transition paperwork, it is important to let your participants know what is happening. Address these basic questions: Why are you making a plan change at this time? Explain whether it is due to cost, service issues, or other factors. What is changing? The advisor or the record keeper may be changing. Also, fund choices are most likely changing. Tell participants how these changes will impact them. How will this affect them? Your goal is to execute the transition in the participants best interest. Explain the benefits, which include lower cost, better service, increased efficiency, more choices, and improved fiduciary management, among others. When do they need to act? Clearly communicate the timeline so participants know what to expect. Why should they be saving? Participants may want to know: -- Are Roth contributions available in the plan? -- How much is enough to contribute? How much is allowed by law? Is there a matching contribution? -- How often can participants change their contributions, and is this done online or on paper? In addition, participants may ask: When are the new election forms due? Is there a choice of funds or model portfolios? Do contribution election forms need to be updated at this time? Can beneficiaries be changed? Address these questions at the enrollment or re-enrollment meeting. Ideally, a member of the management team and the education advisor should be present. The ultimate goal is for everyone to hear consistent messages regarding the transition, including the reasons for switching providers, the anticipated timetable, what is changing, what is staying the same, the participant s responsibilities, what forms to complete, and next steps. Face Time and Follow-up Shortly after the enrollment meeting, the ideal advisor will offer availability for oneon-one meetings. The purpose of these meetings should be: To allow participants and their spouses to ask questions. To understand how the employer-sponsored plan fits into their ultimate retirement goals. To decide how much to contribute, including Roth vs. pre-tax contributions. To dive deeper into the available investment options and determine how outside plan assets might fit into the overall asset allocation mix. Follow-up meetings create a solid working relationship and give the participants access to experienced individuals who are concerned with their success, rather than selling them a product.
Annual Review Meetings An ideal advisor will offer annual review meetings with participants. Topics may include economic and market commentary, the portfolio, fund performance, and any changes in the plan design, the advisory firm, or other providers. This meeting is essential for keeping participants engaged. Live interaction with the advisor will make them feel like they are part of the process, which will lead to greater confidence in the plan, the providers, and the management team. During turbulent market environments, the ideal advisor may visit more frequently to offer participants some perspective and assurance that they are still doing retirement right. Participants should remain diversified and keep contributing even when markets decline. If they are not informed, their lack of education may lead to poor financial decisions. Continuing Education 10 Ongoing Learning Opportunities: 1) Conduct in-person meetings. 2) Conduct meetings or create a web-based portal for information. 3) Offer a quarterly investment newsletter, uploaded to the library of the plan access website. 4) Create an interactive, easy-to-navigate website with multiple tools and calculators. 5) Make periodic plan check-up calls to stay in touch. 6) Communicate regulatory, legislative, and plan sponsor initiated changes. 7) Schedule an annual one-on-one investment allocation review meeting to ensure the plan is on track. 8) Go through a pre-retirement checklist to review contribution goals, timeframe, and other details. 9) Review distribution options. This will be a popular subject with older participants as they approach retirement. Distribution options may include rollovers, in-service distributions, lump sum withdrawals, and deferred employee options. 10) Leverage intellectual capital that the ideal advisor has to offer. Education is Vital: Education is the key to understanding how a 401(k) plan operates. Employees will not participate unless they understand what is being offered. Highlight potential employer-matching contributions and encourage participants to take advantage of this important benefit. If the plan offers a Roth 401(k) option, the Roth versus pre-tax discussion will be very important. Explain the benefits of a pre-designed model vs. building a personal model with the list of investment options. Enrollment and beneficiary forms are completed before the plan is taken over by the new provider. Though many participants may not change their contributions or beneficiaries, encourage them to take this opportunity to review their choices. Offer an education tool kit to equip participants with the tools and information they need to succeed, including retirement plan trends, the incorporation of their plan with Social Security, how much to save, investment strategies, Roth and tax analysis, and more.
10 Managed Participant Choice Choice is important. In a perfect world, participants would have a full understanding of investments and be able to effectively assess their financial goals and select investments that match their risk and return needs. Of course, in reality this is far from the case. Participants need choices, but they also need to be guided to make the best decisions possible. Number of Options The first thing to assess is how many funds to offer in the plan. The goal is to provide participants with a broad, diversified array of options without overwhelming them. Plans that do not offer enough options limit the participants ability to create portfolios that meet their needs. On the other hand, many plans today simply offer too many options. For those who have not been trained in investments, this can be very confusing and even negatively affect participation in the plan. Too many options can also lead an overwhelmed participant to select only a few funds, which does not provide enough diversification. At the same time, too many options can lead participants to base their selection only on past performance. The SEC requires firms to disclose that past performance is no guarantee of future results because there are many factors that affect performance. Selecting funds based only on past performance can be dangerous and cause employees to take more risk than intended while resulting in a poorly diversified portfolio. In order to maximize employee participation and to help guide them to the right solution for their portfolio, offer them a list of 15 to 20 funds. That should be more than enough to provide diversification without overwhelming them. Overlapping Options Another way to simplify and improve the process is to offer only one fund per asset class. Plans often offer participants several funds per asset class. This can be confusing and can also lead them to inadvertently overweight certain asset classes. For example, instead of offering several U.S. large cap funds, select a single low-cost, diversified option to cover that asset class. This will guide participants toward a more effective and welldesigned portfolio. Eye on Expenses The only sure way to increase return in investing is to reduce expenses. With all of the information regarding investment options, participants can sometimes lose sight of underlying fund expenses. It may be tempting for them to focus on historical performance instead of expenses, which can have a large affect on investment outcomes. By eliminating high-cost funds, plans can guide their participants to reduce expenses. The Ideal 401(k) Plan offers many diversified, low-cost investment alternatives. The Ideal standard is to offer a comprehensive, yet convenient range of portfolio options that empower participants and help guide them to make effective investment decisions.
Building Effective Portfolios We believe that asset allocation is the most important decision an investor can make. Therefore, the goal of an Ideal 401k Plan is to offer a simple solution for participants to build portfolios that meet their financial needs while maximizing return and minimizing risk. Do-it Yourself Portfolio Some participants may desire to build their own portfolio by choosing from the menu of offered funds. However, those who do not have investment training may not know where to start. Participant education is of course important, but plan construction can also help. As discussed above, a plan that offers the right number of funds with minimal overlap and expenses can really help guide participants to make good decisions. Model Portfolios Another way to help participants build effective portfolios is to offer them diversified model portfolios of varying risk as their investment option. Instead of selecting funds on their own to construct a portfolio, the plan could offer prescribed models that are already designed to maximize return and minimize risk. The portfolios can be reviewed periodically and automatically rebalanced, which takes the burden off the participant to build their own model and maintain that allocation. Based on our experience, most participants will select a model portfolio when given a choice. Over the long run, using well-diversified rebalanced model portfolios, participants will view retirement planning as a simple process. This can help improve plan participation as well as each person s investment outcome. Diversification By having the right asset classes and proper allocation among those asset classes, participants will have a more structured approach to building out their retirement nest egg. Through proper education and the right tools, participants will have a more managed choice. Some participants will want to build their own portfolios by choosing from available investment options. Proper education is needed to ensure that participants do not concentrate all their money in one or two funds. Offer them low-cost asset class funds to give them a better chance of building an efficient portfolio. Ultimately, a robust, interactive, ongoing, in-person or technology-based employee education platform will help a plan sponsor deliver an Ideal Retirement Plan to your plan participants.
Educational Materials and Turn-Key Solutions Bringing It All Together Online Education Online educational seminars can help participants make better investment and savings decisions for retirement. These sessions are developed by the advisor and will explain how to make investment elections. Online tools, such as blogs and calculators, can provide additional value. Written Materials Customized educational materials are necessary to help guide participants through the election process. The election form will graphically illustrate model portfolios and individual fund options, and the educational materials will help teach participants about capital markets and help them make proper long-term investment decisions. One-on-One Allocation and Fund Selection Meetings One-on-one sessions will assist individual participants in making their fund selection and asset allocation decisions. These on-site meetings allow them to ask personal questions regarding fund selection, asset allocation, risk, return, savings levels, and the integration of their personal assets with plan assets. Quarterly Investment Review and Analysis A quarterly investment review letter that discusses investment results and the market outlook should be made available in hard copy and electronic versions. Administrative Technology for the Plan Participant A participant portal should ideally include: Enrollment: Online entry or printed materials with stepby-step tutorials offering in-depth content and tools to maximize participation. Education: A center with investing and retirement savings tools, including articles of interest, guides, interactive calculators, glossary of terms, market research, and fund charts. Transactions: Ability to initiate transactions in a secure, simple manner. Investing: Access to fund information, prospectuses, and other investment education materials. Statements: Ability to view trade history and statements for any period of time, as well as the option to request hard-copy statements. A toll-free help desk number should be available to plan participants for account support. The final step in building the Ideal 401(k) plan is maintaining a robust education program. This will help enhance the quality of the overall plan and investment platform you have built.
Savant Capital Management 866.489.0500 savantcapital.com Savant Capital Management is a Registered Investment Advisor. Savant s marketing material should not be construed by any existing or prospective client as a guarantee that they will experience a certain level of results if they engage the advisor s services. The Advisor does not attempt to furnish personalized investment advice or services through this presentation. Past performance is no guarantee of future results. Revised 1/14