Retirement Plan Education for Employees Is a Real Win-Win

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By Eric Sholberg, CPA, AIFA

I think we can all agree that providing investment and retirement plan education for employees is the right thing to do and will help your employees reach their financial goals. However, did you know that providing education also reduces your liability and helps you meet your fiduciary obligations?

Retirement plans that are governed under ERISA §404(c) offer plan sponsors liability protection based on a participant’s gains or losses on their account when they direct their own investment. To receive the benefits of ERISA §404(c), plan fiduciaries must comply with certain requirements.

There are many misconceptions regarding ERISA §404(c) plans. Simply giving plan participants a mutual fund lineup and some Morningstar profiles does not amount to serious retirement plan education for employees. ERISA §404(c) protection is about following a process, and many plans fall short.

The first step a company must take when working with compliance around ERISA 404(c) is ensuring employees understand the investment options available to them. In addition, plans must include the following to comply with ERISA §404(c):

Enrollment Meetings

  • Provide an overview of the plan’s characteristics.
  • Help employees understand how to put the plan’s investment options to work for them.

Broad Financial Education

  • Offer the basic building blocks of how a retirement plan fits into an individual’s retirement planning and how their retirement planning fits into their overall financial picture.

One-on-one Financial Education

  • Unfortunately, many advisors may shy away from one-on-one meetings unless there is the potential for a product sales opportunity. It is important that employers find an advisor who openly offers personal counseling to employees. The help the advisor provides may range from resolving account login issues logging into their retirement plan to selecting investments on the recordkeeper’s website.

Plan sponsors should always look to their advisors to provide comprehensive and unbiased retirement plan education for employees. Offering participant education helps a plan sponsor minimize their liability under ERISA §404(c). The purpose is not to ensure that all participants are set up to do everything perfectly within their retirement plan, but as stated above, it is all about creating a process where participants have access to optimizing the options available to them within the plan. We believe in helping participants as much as possible along the way and engaging on their level by engaging them in a group setting as well as giving them the opportunity to meet with an advisor one-to-one.

Are you looking for advice specific to your situation? Reach out to our team of retirement plan advisors.

Eric Sholberg, CPA, AIFA serves as a retirement plan advisor at Brighton Jones.

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