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What You Need to Know to Evaluate 401(k) Plan Communications

June 23, 1999
Related Topics: Benefit Design and Communication, Retirement/Pensions, Featured Article
Issue: You’re an employer with a 401(k) plan. Your 401(k) plan service provider has just given you some sample communication materials for your 401(k) plan, to be distributed to your employees. Are they any good? How do you go about evaluating them?

Answer: According to Ms. Julyette Jacobs, Investor Education Director at the Financial Literacy Center, employers should look for communication materials that:

  1. use a colorful and eye-catching format;
  2. are written in a clear, easy-to-understand style;
  3. are designed to motivate employees to take action, such as enrolling in the 401(k) plan or re-allocating their 401(k) investment choices, and
  4. contain content that is interesting for employees to read.

Accuracy and visual appeal count.
"A communication package should provide accurate information and colorful visual materials that can be used in group meetings. It also needs to contain coordinated handouts so that employees have a place to take notes and something to take home to share with their families," notes Jacobs.

Customized information should be included.
"In addition, there should be a way for the employer or financial professional to add information about the client’s particular plan provisions into the materials," Jacobs explains. "Of course, the price quoted by the vendor is also a consideration for the employer."

Check for basic information that should always be included.
At a minimum, information on the following topics should be included in 401(k) plan communications:

  • Why employees need to save for their retirement;
  • How the 401(k) plan can help employees accumulate retirement assets, including an explanation of compound earnings;
  • Ease of saving through payroll deductions;
  • Cautions regarding how withdrawals, loans, and failure to roll over account balances will impact retirement savings;
  • Permitted contribution levels and amount of match, if any;
  • When employees can begin participating and how;
  • Available investment choice and frequency of investment changes; and
  • Availability of loans and withdrawals.

Explain why employees have to save for retirement.
"Employees should get an explanation of why they need to save for their own retirement," stressed Jacobs. "This explanation may include references to the uncertain future of Social Security benefits and the lack of traditional defined benefit pension plans for many employees."

"The materials should also include an explanation of what a 401(k) plan is and how it can help employees accumulate money for retirement, including a discussion of the effect of compounding retirement savings."

Caution employees about impact of taking loans.
"The ease of saving through automatic deductions from paychecks should also be covered. In addition, the materials should caution employees about how taking in-service withdrawals, loans, and distributions when they change employers can hinder their chances of accumulating the amount needed to retire comfortably."

Employees should also get information about how much they can contribute and employer matches, if any. "Explanations of when they can participate, how they can participate, available investments, permitted frequency of investment changes, and the availability and conditions of loans and withdrawals should also be included."

Note investment risks and who pays administrative costs of plan.
"In addition, some information on investment risk, asset allocation, and the expenses associated with the investments (types of fees—e.g., internal management fees, front-end loads, and back-end loads—and how much) and who pays the administrative costs of the plan should included. Finally, the benefits of dollar-cost averaging and the concept of buying 'on sale' when the market dips should be covered in the materials," Jacobs concluded.

SOURCE: "Evaluating and designing 401(k) communications campaigns," interview with Ms. Julyette Jacobs, CCH’s Benefit Plan Compliance, January 1999, Volume 3, Issue No. 1.

CCH Incorporated is a leading provider of information and software for human resources, legal, accounting, health care and small business professionals. CCH offers human resource management, payroll, employment, benefits, and worker safety products and publications in print, CD, online and via the Internet. For more information and other updates on the latest HR news, check our Web site at

The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion.

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