I had an absolute blast this morning presenting to one of my longtime 401k plan's employees. It was delightful having 21 animated employees engaged in what can be an otherwise dry topic - "Understanding 401k investments". Here are a few thoughts on what makes for effective 401k participant education.
The first key component is, of course, motivated, animated, and interested plan participants. It does not matter what topic you are presenting or how exciting it is. If your audience does not want to be there, you have lost the battle. In this case, my talk was a brown-bag lunch talk and open to any employee who wanted to attend. Still, just because they had shown up did not mean they would actively participate. That requires the topic be tailored to their needs.
Tailoring the topic means that you must understand your audience and meet them where they are at. In this case, some of the employees were beginners in the world of investing. Others could probably debate Information Ratio versus Sharpe Ratio with alacrity and insight. I took it slow, starting with a basic primer book, explaining stocks vs. bonds vs. mutual funds before moving in areas of measuring risk and return before finishing with a talk on sustainability in investing.
Examples are key as well and the examples must be relatable. After 34 years in the industry, I find that most 401k audiences are experts in their chosen field but investing is beyond them. In this case, my audience was primarily based in the San Francisco Bay Area so I offered examples based on familiar geography, weather patterns, etc. Yes, you can explain standard deviation though year-around temperatures. Based on the questions asked, I think the examples worked.
I have also found over the years that it may be necessary to give a presentation in the employees' preferred language (ie, Spanish) or to employ an expert translator. Thankfully these services are readily available. The important thing is to meet with the translator ahead of time, go over what you are going to say, and make sure they can clearly explain everything. This is especially important in disclosing risks as all investments carry some degree of risk.
And finally, I encourage employees to meet with me one on one or with an outside trusted financial advisor. As noted in prior articles, it is important that the 401k advisor be guided by what is best for the employee. Full stop. End of story. The advisor's interests must be set aside.
In that vein, I am proud of the clients I have been able to help but I am equally proud of those I have helped find a different path that has nothing to do with me. For example, an employee yesterday asked me if he should rollover his old pension into his current 401k with me. My approach was to suggest he review the pension rules to see if he is giving up any benefits before making any decisions. I also suggested he consider whether he might go back to the employer where the pension resides and what that could mean in terms of his benefits. Advisors who recommend rollovers in all situations make me raise my eyebrows a bit.
These are my approaches to effective 401k participant education. I hope these ideas translate to your own 401k plan and I welcome hearing other approaches that work. I certainly am open to more education myself!