Any employee benefit program will better meet its objectives if an employer communicates about it effectively. And perhaps no other employee benefit plan requires as much careful attention to employee communication as a 401(k) plan (see ¶102 in Thompson’s The 401(k) Handbook).
Pre-tax 401(k) plans are unlike employee savings plans that use after-tax contributions, and an employer and plan sponsor must clearly communicate the distinction between them to participants.
The need to communicate effectively with employees regarding 401(k) plans is heightened by the fact that employees may react negatively to plan limitations and restrictions. And an employer should point out to employees which plan provisions are employer-generated and which the law requires. This is particularly important with regard to withdrawal restrictions and penalties.
Even if it seems as though you’re spending large amounts of time preparing and disseminating benefits information to your employees, when asked, most of them generally report dissatisfaction with the effectiveness of these communications. A recent study illustrates the importance of communicating well regarding 401(k) plans.
So what can employers do to improve their benefits communication?
In order of preference, the benefits participants surveyed by Colonial Life & Accident Insurance Co. said:
- give access to this information at home or at work;
- provide information that’s easier to understand; and
- offer an opportunity for employees to talk to a benefits expert on company time.
A survey commissioned by Colonial Life of 2,111 adults and conducted by Harris Interactive in late February and early March found 60 percent of respondents rated their employers’ benefits communication as “fairly or very effective.” Nine percent even said it is “not at all effective.” The workers are nearly unanimous in rating as at least somewhat important the need to understand these benefits; 73 percent said it is “very important.”
For example, in the Colonial Life survey only about a third with employer-provided benefits said they are very comfortable deciding about benefits offered at work. Comfort levels varied by employee income: Workers with $50,000 or more in household income were more likely to say they felt competent to make benefits decisions than those earning less.
For more information about communicating retirement plan information to employees, see ¶621 in the Handbook.