Investment policy statements, while not technically required by ERISA, have become a standard quality control tool to help retirement plan sponsors stay on track with their fiduciary obligations to plan participants with respect to plan investments. Jonathan Baltes, the CEO of QP Steno, LLC, believes it is equally important for sponsors to adopt and monitor progress with an educational policy statement for their defined contribution plans.

“When you survey the legislative and regulatory landscape, you see that plan sponsors are being required to be more intentional about what they are doing” with respect to all key facets of plan management, Baltes says. Plan sponsors and advisers understand the vital role that participant education plays in delivering positive outcomes, yet often don’t do as much in establishing goals and monitoring progress as they do with plan investments, he adds.

“If you provide something to a participant, you have to have a clear reason for doing so and metrics to measure the impact,” Baltes says.

Also see: Employee education policy statement can help set goals, improve engagement in retirement planning sessions

QP Steno, a technology firm that provides tools that help plan sponsors and advisers monitor certain plan performance metrics, recently published a white paper on the topic of EPSs. The author, Douglas Dormire Powers, is an ERISA attorney with Beckman Lawson, LLP.

“Compelling evidence”

According to Powers, “when properly implemented, a well-crafted educational policy statement can provide compelling evidence of a plan sponsor’s responsible discharge of its fiduciary duty to participants.” An EPS also results in the delivery of “essential information to participants that empowers them to take control of their retirement plan assets and plan for a successful retirement.”

A good EPS “should be the foundation for an informative, engaging and understandable educational experience for participants that enables them to direct their plan account balances” optimally.

Also see: 7 best practices for 401(k) employee education

Following are the steps to create and components to build an EPS as outlined in the white paper:

  • Assessment: Gather facts about strengths and weaknesses of the plan, participation levels, demographics, and key plan features.
  • EPS content development: This includes the basic stated purpose of the EPS, as well as its specific objectives, such as how the sponsor intends to describe investment options and performance, key investment concepts, the process of asset allocation, and retirement goal establishment.
  • Implementation: For example, the EPS can outline the planned frequency of educational sessions, determine the ideal setting for educational sessions, how educational efforts will be adapted to different workforce demographic segments, among other things.
  • Evaluation and modification. Educational goals and outcomes should be specific enough to be measured. Therefore, the EPS should assess the effectiveness of the educational effort, and the process by which changes are made to improve those outcomes.

Also see: Writing a new fiduciary formula

One reason the EPS is rare today, Baltes asserts, is that plan advisers with primarily an investment orientation don’t push the idea because they aren’t confident they can help sponsors get a handle on addressing participant education so concretely. But he also believes information technology tools geared towards tracking service provider activities in this realm can make the job much more manageable for plan sponsors and their advisers.

Richard Stolz is a freelance writer based in Rockville, Maryland.

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