Somewhere along the line, “retirement readiness”morphed into “financial wellness.” It's not clear if this is a goodthing. It may be more about handing out the daily fish and lessabout teaching employees how to fish. (Photo:Shutterstock)

Here's why crowd sourcing works: I just heard a story from theeditor of Entrepreneur magazine while attending a session at theNew York Press Association's annual conference. He cited an exampleof an enterprising entrepreneur who, after quite a few failedattempts, hit pay dirt.

What was his secret? He went to Amazon and read all the poorreviews. These complaints spelled out exactly what the market was looking for. So he made productsthat offered these features. Consumers benefited by getting whythey wanted. As a result, he benefited by making lots of money.

The lesson here is you don't need a sophisticated marketresearch regime to discover hidden markets. You just need to listento the war stories from the people on the front lines.

This is precisely what I did recently when I sought to uncoverwhat was really happening in those employee 401(k) education meetings (see“401k Plan Sponsors Are Asking For These EmployeeEducational Topics,” FiduciaryNews.com, April 9, 2019).

Using this crowd-sourcing technique allowed me to quickly paintthe picture of what was motivating plan sponsors on thissubject.

It was all sunshine and lollipops until I asked myself adiscomforting question: Why should plan sponsors be in the personalfinance education business?

Certainly, plan sponsors have a duty to inform (and teach)employees about the nature and scope of the benefits they offer.This obviously includes the company retirement plan. Thetried-and-true lesson plans that describe savings and investingbasics form the basis for this. There's nothing wrong withthis.

But there may be something wrong with this: teaching financialliteracy.

Whoa! I could hear several of you falling to the floor indisbelief. “How could Carosa speak of such heresy?!” you shout.

Well, now, before you go getting all judgmental and everything,consider the reasoning.

It starts with this philosophical axiom: “Give a man a fish andyou feed him for day. Teach a man to fish and you feed him forlife.”

Others before me have brought up the issue of paternalism interms of the direction 401(k) plan design is heading. The bestexamples of this are the use of auto-enrollment and QualifiedDefault Investment Options. Both of these plan policy initiativesrose dramatically from the fertile incubator known as the PensionProtection Act of 2006.

Yes, these policies have increased enrollment, but they may havecome with the unintended side effect of capping savings growth. Bytaking the enrollment decision out of the hands of the employee,you've removed the need for the employee to engage. In theshort-term, this boosts participation rates. Longer term, however,we haven't seen employees boosting their deferral rates. By givingthem the fish, we've taught them they don't need to fish.

Some suggest auto-escalation is the answer, but is it? Or doesit simply kick the can down the road?

Ironically, placing the plan on “auto” pilot eliminates theurgency of the traditional 401(k) employee education syllabus. Whyteach employees about saving when saving is done automatically forthem? Why teach employees about investing when they don't need tomake a decision on where to invest?

But we still need to provide education to employees? What to do,what to do…

To fill this void, and perhaps to make up for the lackof such education in our secondary schools, plan sponsors seemexcited to provide lessons in financial literacy. Formerly brandedunder the moniker “financial planning basics,” topics such as debt,budgeting, insurance, etc… now appear more frequently in 401(k)employee education meetings. You may recognize them by their newname: “Financial Wellness.”

It used to be plan sponsors focused on “retirement readiness.”That made sense. After all, what's a retirement plan for if notabout getting ready for retirement?

Somewhere along the line, “retirement readiness” morphed into“financial wellness.” It's not clear if this is a good thing. Itmay be more about handing out the daily fish and less aboutteaching employees how to fish.

Again, I can see you jerk back when you read that laststatement. Don't think your computer screen blocks my view. (Do youreally know where all the camera lenses are on your device?)

“But isn't teaching financial literacy just like teachingsomeone how to fish?” you undoubtedly ask.

It may be. Or it may not be.

Consider the case where employees become too dependent on theiremployer to vet the financial wellness teachers. (This is preciselythe kind of fiduciary role plan sponsors see themselves in.) Whathappens when those employees retire (or otherwise leave theiremployer)? Will they be prepared to fish for their own financialservice provider? Will they have the confidence to do so?

Just like other areas of retirement, it's best when employeeshave a chance to practice their independence before actuallyretiring. A solid education program, therefore, won't lead theemployee by the hand, but point the employee in a generaldirection. This way, employees can forge ahead for themselves,knowing they're still in the company's comfortable cocoon. Thisallows them a timely second opinion on any exploratory activitiesthey engage in.

Should 401(k) plan sponsors be on the hook for teachingfinancial literacy? Probably not. But if they're intent on doingso, the least they can do is to provide a rod and reel for everyemployee.

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