EBRI Issue Brief
Can We Save Enough to Retire? Participant Education in Defined Contribution Plans
- The growth in defined contribution plans has focused attention
on issues such as whether workers can be educated to make wise
decisions regarding their participation in such plans and what
constitutes advice as opposed to education by an employer. This
Issue Brief is the first of three that will explore these
issues. It examines the public policy issues involved in participant
education, discusses selected educational efforts and provides
preliminary findings on their impact, and presents estimates of
workers' relative preferences among various plan characteristics.
- Many defined contribution plans require workers to make decisions
regarding participation, contribution rates, and asset allocation
across available options. In making such decisions, a worker would
ideally be influenced by two temporal concepts: determination
of appropriate time horizon and periodicity, which involves recognition
of the stages of a worker's life and his or her priority of needs
at each stage.
- Several characteristics impact the participant's time horizon
and periodicity. Work force diversity makes it difficult for a
sponsor to satisfy the savings objectives of all participants
simultaneously unless they provide asset allocation flexibility.
However, some sponsors are concerned about potential liability
for investment "losses" incurred by participants even
though participants direct the asset allocations of at least some
of their balances. Still, many plan sponsors have decided that
the advantages of individual choice outweigh potential legal liabilities,
and ERISA sec. 404(c) provides sponsors with guidance on plan
design provisions that may minimize sponsor exposure.
- Many companies are responding with innovative methods to enhance
the strength of their participant education efforts. Three areas
considered in participant education communication are the media
used to transmit the message, the frequency of the message, and
the content of the message.
- In a recent survey by EBRI and Mathew Greenwald and Associates,
73 percent of 401(k) participants reported that their employer
provided some type of educational material. Among those using
the material, 33 percent reported that it led them to increase
the amount of their contributions and 44 percent reported that
the materials led them to change the allocation of their money.