As employees become more engaged in their retirement planning, they will require more help and information from plan sponsors.
By Lee R. Freitag
In an era of shared decision-making, one of the most important responsibilities for a plan sponsor is educating participants so that they may make crucial decisions, which can help produce better financial outcomes at retirement.
Without a strong communication program in place, implemented through a multi-channeled approach, even the most well-intentioned plan sponsor offering world-class benefits might fail to engage participants in the retirement planning process.
Retirement communication programs should be tailored to the companyâ€™s workforce and culture. For a defined contribution plan that has recently hired a new provider (investment manager, recordkeeper or trustee), fully communicating any changes in plan features and benefits is critical to the success of a transition.
The three phases for implementing a new provider for a defined contribution plan are:
A shared vision and collaborative partnerships are keys to success given unique participant needs. Clearly defined responsibilities among the plan sponsor, investment manager, recordkeeper and consultant are critical to successfully providing participants with the right quantity and quality of information to help them make more informed decisions.
Print, digital and webinars are all effective channels for communicating with plan participants. Additional communications via a dedicated website for plan participants will allow them to view information when it is most convenient for them. Since most young workers are comfortable with mobile technology, this channel also provides additional benefits.
Websites may include information about investment fund offerings and structures, as well as pertinent articles to keep participants engaged and educated about current topics in retirement planning. The Northern Trust Focus Funds website for defined contribution plan participants includes many of these features.
In addition to the communication programs that plan sponsors, investment managers and recordkeepers should offer to help ensure participant retirement success, the U.S. Department of Labor has issued its own directives — two regulations and one proposed rule — around disclosure requirements.
The first regulation outlines the requirement for providers supplying services to plan sponsors. This regulation focuses on the disclosure of the direct and indirect compensation certain service providers receive.
The second regulation pertains to making sure participants have access to the information they need to make informed decisions about saving and investing in their 401(k) plans, including the ability to easily compare fund offerings and details about fees and expenses.
Finally, a proposed rule pertaining to helping employees understand target date funds and other similar investments within a 401(k) is currently under review.
The following table summarizes the key requirements of the new and proposed regulations.
|FINAL Regulation Relating to Improved Fee Disclosure for Retirement Plans||FINAL Rule to Improve Transparency of Fees and Expenses to Workers in 401(k) Retirement Plans||PROPOSED Target Date Retirement Fund Disclosures|
|Information required to be disclosed by plan service providers must be furnished in writing||Plan Related Information Disclosures:
||Rules amend existing regulations to ensure that all participants and beneficiaries in participant-directed individual account plans receive comprehensive information needed to evaluate Target Date Funds (TDF) and how they meet their investment objectives|
|Information that must be disclosed includes a description of the services to be provided and all direct and indirect compensation||Investment Related Disclosures:
||Proposed amendments include:
|Information concerning services and costs must be disclosed without regard to whether services are furnished as part of a bundle or package||Investment related information must be furnished annually, and in a format to facilitate investment option comparison|
|Service providers must disclose whether they are providing any services as fiduciary of the plan||Participant must be provided any materials the plan receives regarding voting, tender or similar rights|
|Information must be disclosed about plan investments and investment options||Plan administrator must furnish prospectuses and other financial reports upon request|
|A service provider generally must disclose a change to the initial information as soon as practible, but no later than 60 days from the date of change|
|Service providers must disclose compensation or other information related to their service arrangements that in order to comply with ERISAâ€™s reporting and disclosure requirement|
Source: U.S. Department of Labor
Integrated participant communications that focus on what really matters helps ensure that defined contribution plan participants stay engaged in their retirement planning process and pay attention to information that can help them secure greater success at retirement.