Have you heard of an Education Policy Statement? If it sounds like "Investment Policy Statement," then you get the idea. The concept of an EPS is not new and, to some extent, some IPSs contain information pertaining to employee and trustee education. But, until recently, the idea of implementing a comprehensive EPS has not been broadly considered by 401(k) plan sponsors. As we see 401(k) plans evolve back toward the savings vehicle it was originally, many see a need to reconfigure the current investment-centric 401(k) education programs and replace them with savings-based education programs.
At the same time, creating an EPS that parallels an IPS is being seriously considered. However, as explained in the article, "Coming Soon From a 401(k) Plan Sponsor Near You: A New and Improved Focus on Participant Education," (FiduciaryNews.com, Oct. 29, 2013), an EPS may be too risky to adopt until we know the most effective way to address the various (and changing) constituencies of 401(k) plans.
Rather than using an EPS, it may be more prudent to start with an Annual Education Plan (AEP). As the name implies, an AEP is created once a year. Once the year ends, the 401(k) plan sponsor's obligation to the AEP disappears. Unlike an EPS, an AEP may be scrapped, revised or rewritten the next year. This way, as plan demographics change, it's much easier to incorporate them into a new AEP.
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For example, let's say the plan sponsor's multiyear objective is to increase the participation rate above a certain threshold. If this objective is placed into an EPS, along with a program to achieve it, the plan sponsor is obligated to implement that program continually, even when the objective is achieved. Sure, it's easy to say, "Why not just make sure to update the EPS every year?" But reality is another thing. Why risk forgetting to update when the plan sponsor can merely use an AEP that ends after 12 months?
Still not convinced an AEP offers a substantial advantage over an EPS? Rather than focus on objectives, we'll focus on delivery systems. Let's say an AEP determines a significant portion of the education program should be delivered face-to-face in on-site meetings. Over the years, as more of today's 20-year-olds (and younger) become a larger portion of the employee population, on-site face-to-face meetings may be less effective. We know this generation prefers texting to talking. They may also prefer to receive their education online, not on-site. This subtle shift is far more difficult to identify. Starting from zero every year with an AEP makes it easier to adopt what might be considered a dramatic change to the education program.
These are just two examples. Ideally, an AEP would feature a complete demographic analysis and design an education program customized to the needs of the company's specific demographics. This program should include well-defined objectives, detailed actions, precise measurements and relevant benchmarks. At the end of the year, an assessment can be made to determine how successful the AEP was. If it works, great! Keep it. If it works for the most part, great! Tweak it. If it doesn't work at all, great! Trash it.
An AEP is a flexible tool perfectly suited for today's constantly changing 401(k) environment. Why would 401(k) plan sponsors wear the albatross of an EPS when they can simply don a cloak with an automatic 12-month expiration date?
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Christopher Carosa
Chris Carosa has been writing a weekly article and monthly column for BenefitsPRO online and BenefitsPRO Magazine since 2011 and is a nationally recognized award-winning writer, researcher and speaker. He’s written seven books, including From Cradle to Retire: The Child IRA; Hey! What’s My Number? – How to Increase the Odds You Will Retire in Comfort; A Pizza The Action: Everything I Ever Learned About Business I Learned By Working in a Pizza Stand at the Erie County Fair; and the widely acclaimed 401(k) Fiduciary Solutions. Carosa is also Chief Contributing Editor of the authoritative trade journal FiduciaryNews.com and publisher of the Mendon-Honeoye Falls-Lima Sentinel, a weekly community newspaper he founded in 1989. Currently serving as President of the National Society of Newspaper Columnists and with more than 1,000 articles published in various publications, he appears regularly in the national media. A “parallel” entrepreneur, he actively runs a handful of businesses, including a small boutique investment adviser, providing hands-on experience for his writing. A trained astrophysicist, he also holds an MBA and has been designated a Certified Trust and Financial Advisor. Share your thoughts and story ideas with him through Facebook (https://www.facebook.com/christophercarosa/)and Twitter (https://twitter.com/ChrisCarosa).
