PLANSPONSOR - September/October 2024 - 14

COVER STORY
broader support to that individual with so many questions about
[his] finances. "
Or, as Abigail Russell, senior vice president with CAPTRUST
in Raleigh, North Carolina, expresses it, " The 401(k) plan has
shifted from being the focal point to now being just one of the
tools to help them prepare and create that wealth for themselves. "
Effective financial wellness education thus requires a more
holistic focus than the retirement plan, even for plans with a full
range of auto-features, says Lisa Drake, retirement plan consultant
with SageView Advisory Group in Orlando, Florida. " I tell
employers, people are not losing sleep over their asset allocation, "
" Yes, they want to save more, and they want to retire, but for some
that's way in the future. For many people, it's the other components
of their financial picture: It's budgeting, it might be debt,
it might be that they're in the sandwich generation taking care of
elderly parents and taking care of children. "
Dealing With Nonautomated Plans
" How America Saves 2024 " found that only 40% of small and
midsize plans-i.e., those with fewer than 500 participants-that
allowed elective contributions also used auto-enrollment.
The decision not to automate plan features is often a financial
consideration, Send notes. When companies match contributions,
the increased enrollment and escalation cost the company
more money. Yet the lack of auto-enrollment increases the challenge
of engaging participants-the " natural stance is just to
avoid the whole thing " due to other financial needs, she adds.
Russell says initial educational efforts for employees where
COMMON ERRORS
plans lack auto-enrollment can focus on getting them into the plan
with appropriate investments. The conversation can then shift to
participants' career and life cycle. " That's where the communication
program can be so valuable because you can target education
and communication for people, depending on where they are in
life, " she says. " So, you'll want to get them into the plan and help
them make good investment decisions but
also be thinking about all the different components
of their financial well-being. "
Where enrollment is purely voluntary,
IT CAN BE EASY for participants who lack sufficient information to assume
they are saving enough for retirement. Here are three such erroneous assumptions,
sources say, which sponsors need to watch for and educate against:
'My plan's defaults will give me all I should save.'
Phil Sherman with Deschutes Investment Consulting LLC: Automatic
features can cause some participants to rely on their plan's defaults without
thinking them through. Take the example of a plan that defaults new participants
at a 3% savings rate providing a full match when they defer 6%. Some
participants need to understand that they're not getting that full match
initially. They might also believe that once they hit the full match amount at
6%, they are on track and will have a comfortable retirement without taking
any other steps.
'I'm going to get a pension-what more could I need?'
Lisa Drake with SageView Advisory Group: Half my book is governmental
entities where, especially here in Florida, automatic enrollment is
not generally adopted and is unacceptable in most cases. For many of those
plans, the participation rates are a lot lower. These participants have also
relied on pension plans for a long time and may still be in one today. As
a result, some of them don't save outside the pension plan. Also, from an
investment allocation perspective, they tend to be risk averse and are often
more invested in fixed accounts or stable-value-type funds than are private
sector participants.
'Once my account is set up, it's set for good.'
Jana Steele with Callan: A participant might decide to invest in every
target-date fund or even every fund in the plan and then forget ever having
made this decision, even if later learning that this is not a robust mechanism
for saving or improving one's financial situation. -EM
14 PLANSPONSOR.COM September - October 2024
though, sponsors may encounter other issues,
says Jana Steele, senior vice president with
Callan in Chicago. One can be failing nondiscrimination
testing due to having a preponderance
of highly compensated employees in
the plan. Sponsors with testing failures can
still work to raise voluntary enrollment but
may confront the same added costs that autoenrollment
invites, she says. Like Send, Steele
says, " I see that sometimes being a deterrent
when sponsors don't want to pay a higher
matching cost, so they're happy for their plans
to trend along as they are. "
Miguel argues that auto-enrollment is not
always necessary for plan success, depending
on the plan's demographics and design. Those
variables also influence how one approaches
participant education. He cites a medical
practice where the participating physicians
are high earners making maximum contributions,
and the plan has a high participation
rate. " If you have high enrollment and strong
contributions, maybe an auto-feature doesn't
make sense, " Miguel says. " You can build an
education strategy around the needs of that
audience and help them take their next best
step with some of the key fundamentals that
are most meaningful to them. "
Providing Effective Education
Creating educational materials that participants
can readily understand and act upon is
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PLANSPONSOR - September/October 2024

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