Employers and Investment Selection Education
Labor Day 2017 – Employers Unmet Promise for 401(k) Investment Selection Education
Do employers have a responsibility to provide independent training in investment selection when they offer a 401(k)? It is an interesting question for Labor Day. After all how many companies maintain that, “Our employees are our most important asset.”
Now if an employer – say a mass merchant like Target, Walmart, Home Depot or Lowe’s – wants an employee to operate a forklift in the store; they only do so after the employee has successfully completed, and demonstrated mastery of operating the equipment. Why, because the possibility for an untrained employee to hurt himself or herself, other employees or customers, and damage inventory and store shelving is well documented. Clearly the employer has a legal as well as an ethical responsibility to provide the necessary training and to ensure proper procedures are followed once the training is completed.
Similarly, a cashier undergoes training before starting to serve customers – cash, store credit, personal checks, credit and debit all need to be handled differently and efficiently for the store to prosper and for customers to be satisfied. Again there is a compelling business reason to “invest” in cashier training.
Now let’s consider that employee – the forklift operator and the cashier – and their retirement savings. They are recruited to their employer with 401(k) as a benefit and they are encouraged by their employer to invest part of their wages in the “company plan.” Is it wrong to assume that the the employer has the same responsibility to provide their employees with the necessary training to successfully use the company 401(k) retirement savings plans?
401(k) Plans Charge Employees for DOL Mandated Investment Selection, without Delivering
Employees are paying for investment selection education – education is a plan expense; paid for by the employee. Now let’s look at what the company/ employee benefit consultant / brokerage industry “troika” does. The “troika” concludes that employees are too busy for education, employees do not want to address investment selection and therefore the “troika” substitutes “sales advice” for education to the detriment of the employee saving for their retirement. “Troika” advice is focused on completing the brokerage industry paperwork and an employee’s need to save more. Is it surprising that employees do not have the tools and training to evaluate retirement investment options? Effectively the “troika” has fostered dependence rather than providing the most valuable education the employee is paying for.
Can you imagine a company saying, “Our employees are too busy for forklift training or the cashiers do not need training, they will figure it out.”
Not for a minute! So as Labor Day 2017 draws to a close let’s ask if employees are really the company’s most important asset.
We encourage every Employer to revisit The Derivative Project’s 2014 Labor Day Blog Post:
In three years, nothing has changed. A key component of a monopoly is an information imbalance.
- “Information Imbalance – Employees were trained, according to a DOL ERISA mandate, that Wall Street provide the information on how to select investments. Yes, Wall Street effectively created a “learned helplessness” and overwhelmed employees with many poor investment options and no proper tools to learn how to evaluate which investment selection was in their best interest. Yes, poor financial literacy is in the best interest of Wall Street….and according to the experts, financial literacy about investment selection is rampant.”
How Rampant is the Lack of Training in 401(k) Plan’s?
It is indeed rampant. A very basic understanding of key components of investment selection, is mandated by the SEC. With tools and straightforward SEC disclosure training, every employee can be empowered to make an informed choice. With technology today, gone are the days of pouring through complex Prospectuses.
Harvard Kennedy School Professor, Brigitte Madrian, conducted a study evaluating MBA students ability to read a SEC prospectus to isolate mutual fund expense ratios. In her “S&P study“, even Wharton MBA students had no idea how to determine which S&P 500 Fund had the lowest expense ratio and was in their best interest.
Labor Day 2017 – Have Employers Met their Obligations for 401(k) Investment Selection Education?
Employers have failed their employees. Independent investment selection education is now available at Check the Ticker – enabling companies to fully meet their legal and ethical obligation to provide the investment selection education their employees are paying for and should receive.
Check the Ticker has harnessed the power of technology today with independent training. The tools and curriculum are ready for every Employer to empower their employees.