Reader Poll: Do You Have an Education Policy Statement Policy?

While education policy statements are not exactly “new,” they have come into greater visibility (if not use) along with a growing emphasis on financial wellness and retirement outcomes, not to mention a more intense focus on fiduciary responsibility. This week we asked NAPA Net readers to share their experience(s).

Most of this week’s respondents (53%) aren’t using education policy statements, though 36% do sometimes. One reader commented “I have never used one… but I should be.” Indeed, only about 11% indicated they are doing so consistently.

Even among those who are using education policy statements, they haven’t been doing so very long. Roughly 7% had been doing so for only about a year, while 30% had been doing so for 1-2 years. Another 29% were in the 3-4 year category, and about half that in the 4-5 year and more than 5 year categories, respectively. However, the rest said they had been doing so longer than they could remember.

Asked about the effectiveness of this tool, most were skeptical; one in five said “not really,” and nearly a quarter said simply “no.” A plurality (38%) said it depended on the commitment of the plan sponsor – as one reader explained, “It’s a good idea if the plan sponsor is willing and committed to it. But you also must have the internal resources as the advisor and/or great working relationships with your vendors to deliver the content for you or with you.” Roughly 9% said they were effective “sometimes.” The rest? Well, they simply (and enthusiastically) responded, “yes!”

Plan Sponsor Response

So, how did plan sponsors respond to the concept? Well, it was a diverse response:

36% – agreeable
19% – reluctant
17% – hesitant
16% – skeptical

The rest? Well, it was a mixed bag.

“They are excited about the idea/ concept, but a little hesitant about the reality of making it work,” noted one. “Only want EPS if they feel they are required to have one,” shared another. “This would vary greatly among our client plan sponsors,” said another. “Many would not bother due to other priorities while others would be enthusiastic. Enthusiasm or lack of may be quickly assessed based on their plan history and track record with respect to their handling of the plan.”

Another reader explained, “They are usually agreeable until they consider the required time, effort and resources they have to expend.”

Plan Sponsor Objections

What are the objections of plan sponsors? Here’s what readers said:

  • “Like anything you put in writing, if you don’t follow it or have measurement tools to gauge progress it doesn’t work. So reassuring client the policy has value, is productive and between the advisor and provider there are ways to measure.”
  • “Sometimes it’s the time commitment in getting employees away from their job.”
  • “[It’s] Another task on their plate that they don’t see much value in.”
  • “If it’s documented and not followed through they don’t have the time to administer.”
  • “Main concern is the potential to violate what is in the statement, given the 1-on-1 meetings are not recorded.”
  • “It’s hard enough for most plan sponsors to follow an investment policy statement, let alone an education policy statement. It is a document that doesn’t get reviewed enough.”
  • “Hesitation that they will not fulfill their promises by having a formal ‘policy’ in place.”
  • “Frankly, many small business owners only look for a tax deduction and how much they may contribute to their retirement account. This is not everyone, but a majority.”
  • “Just another document that can be used against them. Creates more fiduciary exposure.”
  • “This is one more policy to manage and monitor.”
  • “Just more paperwork added to the mountain.”
  • “My plan sponsors see the effort that has been put forth IN RE participant education and the continuing lack of follow-through on the part of certain participants regardless of such efforts.”
  • “It’s not their objections, it’s my objections. I think it is dangerous to put out a policy that may not be followed. IPS are easy because my office directly controls the adherence to an IPS. With education it’s too nebulous.”

Other Comments

Once again we received a good number of comments on the topic. Here’s a sampling:

  • “Based on feedback we have received from ERISA attorneys, most recommend not to use Education Policies as they create additional and unnecessary liability.”
  • “They are easier to set up when the employer has clear goals in mind.”
  • “Our Advice/Education Project contracts explicitly state we will provide fiduciary investment advice that is in the best interest of the plan participant, so they don’t feel a need to create an Education Policy Statement.”
  • “Our industry has created enough ‘policies.’ Why create something so formal, that isn’t required, and expose an employer to potential liability if they don’t follow through? Just work with your client to come up with an education plan informally, and then execute. It can be that simple.”
  • “I think for the larger plans this is a great idea. in the micro/small market I don’t see it as a huge need.”
  • “Many times large businesses have two committees, an investment committee and an administrative committee. This is something I feel an administrative committee should include as one of their main objectives, and certainly a high priority.”
  • “If they’re as useless as vague investment policy statements, why bother?”
  • “By putting it in writing you need to stick to it and education is always a moving target with clients.”
  • “We use the EPS in the same way as the IPS, creating policies and procedures to help the retirement plan succeed. Equally effective with 403b plans.”
  • “Most committees and HR depts. like the sound of this, but not the assumed liability attached if they deviate from it. Having to monitor and manage another policy is a turn-off. In our practice, the education program and results are documented in the quarterly minutes and the annual review.”
  • “By creating an Education Policy Statement, we tie the client organization’s hands. They must do what they say in the statement. I have taken over plans that had an Education Policy Statement and failed to follow the policy in the prior two years. In its current form ERISA has no educational requirement for the plan sponsor or fiduciaries. The closest thing to an educational requirement is in 404(c) and 404(a)5 information and disclosure requirements. I believe it is better to have an educational strategy, and implement the strategy when the plan sponsor can afford it, in terms of employee time and resources. For the majority of my employers that may not be every year.”

Thanks to everyone who participated in this week’s NAPA Net reader poll!

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