Julius Caesar once said “Experience is the teacher of all things.” For 401(k) investors, experience is often the sole teacher. We’ve seen quite a few 401(k) investors experience the fine fruits of a lifetime of investing discipline. For too many investors, though, it’s only when they’re older and “experienced” do they finally understand the missed opportunity of taking correct action in their younger years. If lack of experience is the disease, then a good 401(k) education program is the cure.
Alas, we regrettably see 401(k) education losing the priority battle to investment style arguments, day-to-day business needs and the goings-on of everyday life. Worse, when naïve 401(k) plan sponsors finally agree to support an education program, they frequently cede its design to a conflicted service provider with an aptitude better suited to sales than teaching.
By definition, plan sponsors are expert in their business, not in behavioral finance. Notice what I just said: “behavioral finance.” Notice what I didn’t say: “investments.” Even many financial professionals confuse a good 401(k) education program with a good investment seminar. Nothing can be further from the truth.
Even the 401(k) plan’s much heralded Investment Policy Statement, which should provide a good framework for the 401(k) education program, should be addressing in the practical terms of behavior finance, not merely in academic terms of some investment theory. In fact, of the four key elements of a good 401(k) education program, only part of one really deals with investments. And even there, it’s a topic within the context of disciplined savings.
Ah, savings. The sweet elixir of success. Savings is the biggest issue facing 401(k) participants. The problem isn’t so much having the right investments. The problem is getting the money in the plan to invest in those right investments. Ergo, the primary objective of a successful 401(k) education program must relentlessly focus on one simple thing: savings.
Every 401(k) education program, whether it’s designed specifically for plan trustees, for new entrants or for long time participants, will address both administrative and investment elements.
And although they might cover different parts of these elements, they will all come back to this blunt theme: How do we get more employees to participate and how do we get participating employees to save more? The teacher has to constantly bring back the message to this idea.
What about that teacher? Would you use a screwdriver to hammer in a nail? Of course not! Then, why do numerous 401(k) plan sponsors rely on mutual fund salesmen to teach their employees how to best take advantage of their 401(k) opportunity? While it does make sense to ask a vendor to deliver 401(k) education services, 401(k) plan sponsors need to maintain certain minimum standards.
Good teachers know different people have different learning styles. For example, some respond to a visual graph, while others prefer a table of text. A more challenging concept confronts the 401(k) educator, though. First, there’s a wide range of economic needs and circumstances within the entire body of employees at any one company.
In addition, it’s well known different generations, compel by different experiences, exhibit different value systems. So, what motivates a baby boomer to save might not motivate GenXer to save – and vice versa. Indeed, some (especially younger) generations might not value saving at all.
Service providers who provide education specialists – sometimes even former teachers – should be preferred to those who merely offer the same “investment specialist” who sold the investment options to the 401(k) plan sponsor.
I’ll leave you to ponder this thought with something another investment specialist once said:
“…the better the teacher, the better the student body.” – Warren Buffett