The Investment Language Teacher

Dear Benefits Manager, what does 401(k) education mean to you?

Posted on 9/5/2014 by Mike Walsh in Investor Education 401(k) Investing 401k Education Employee Education 401(k) Confusion Employee Stress Paradigm Shift Needed

Every company 401(k) plan includes some sort of education for the employees. What exactly does this education accomplish? Most of this education leaves out a very important topic - the detailed information and terminology of Mutual Funds. Employees don't get taught the details of Mutual Fund investing.

If it ain't broke don't fix it. We've all heard that saying before and there's a lot of wisdom in that philosophy. Sometimes determining whether or not something is broken is a matter of opinion or perspective, it's not always an obvious yes/no situation.

Let's take 401(k) education in corporate america today, for example. As Founder of The Investment Language Teacher I have spoken with well over 1,000 HR Professionals responsible for their company's 401(k) plans and the education of their employees. 

Most of the time they tell me that their current 401(k) provider, or another vendor, provides the 401(k) education and it's just fine. They aren't looking to fix it because it isn't broken, from their perspective. Like most professionals, the people I speak with are very busy and aren't looking for extra projects, I understand that. 

What about from the employees perspective? What does today's 401(k) education teach them? Employees get taught things they need to know, like the benefits of 401(k)s, how to calculate the amount needed for retirement and other related topics. These are all important, but, something is lacking - investment education. 

Employees are generally not taught the detailed information that is readily available for every single mutual fund. They are not taught how to choose which mutual funds are best for them. Mutual funds are the components of 401(k) plans and not teaching mutual fund terminology and metrics to employees is wrong. The average person can understand and needs to know this information.

Why aren't employees taught this information? I think there are a few reasons.

First, the financial services industry has a vested interest with people thinking that they can't learn this information. All the messaging we see on TV and through other media alludes to the scary and confusing nature of investments. Think about it for a second, if everyone was fully educated on mutual funds and other investment products, would the financial services industry earn more or less money? Less, much less. The average person can learn mutual funds and other investment products, but, don't expect to ever hear that from a financial services company.

A second reason is that no one is telling Benefits Managers that there is a problem with their 401(k) education so they aren't looking to fix it. Company executives are busy running their businesses and there are lots of other issues which are more important and need to get addressed. This contrasts with studies which clearly show that 401(k) plans confuse employees.

A final reason is that there are many Benefits Managers who don't know this mutual fund information themselves, so, they don't think that the employees need to learn it either.

Every mutual fund has the same information available for investors. It's online and free for anyone to look at. It's time that companies include a piece of the 401(k) education which covers this material. To exclude this information is doing a disservice to employees. Until this information is included as a standard part of every 401(k) education program, employees will continue to be confused by 401(k) plans. It doesn't need to be this way.