BEST PRACTICES: Participant Education Guidance for Defined Contribution Plans Flashcards
Public plan sponsors should make sure high-quality investment education is provided to defined contribution plan participants who are allowed to direct their investments.
Who is responsible for choosing investments in a typical defined contribution plan?
Participating employees are responsible for choosing their investments from a menu of options offered by plan sponsors.
What is the primary responsibility of plan sponsors regarding participant education in defined contribution plans?
To ensure that employees have the information needed to make informed decisions about their participation and plan investments, based on their retirement goals.
What type of educational program should plan sponsors provide to participants?
A consistent, ongoing educational program that uses multiple communication channels to suit different career stages and learning styles.
How should educational content for participants be presented?
In a way that avoids financial jargon, defines acronyms, and assists with decision-making.
What should the continuous educational program illustrate to participants?
The value of financial planning, the impact of asset allocation on investment returns over time, and the role of diversification in enhancing risk-adjusted returns.
What should participants be encouraged to consider when making investment decisions?
Their time horizon, investment objectives, and risk profile, in context of all financial resources.
What information should participants be informed about regarding each investment option?
Risk exposure, historical investment returns, and the correlation between high potential returns and high potential for losses.
Should plan sponsors recommend specific investments to participants?
No, to mitigate potential liability, plan sponsors should not recommend specific investments.
How should fees associated with each investment option be disclosed?
Fully, in terms that participants can readily understand.
What resources should plan sponsors utilize for participant education?
Educational resources and capabilities offered by their investment provider or a qualified retirement plan consultant.
How often should account statements be made available to participants?
On a regular basis, preferably quarterly, with a clear presentation of performance and benchmark comparisons.
What should plan sponsors regularly measure and adjust as needed?
Participants’ satisfaction with the plan’s educational program.
