A sustained economic downturn has refocused many Americans’ attention on the importance of long-term financial planning and sound wealth management strategies. Around the country, employers, employees and their families have begun paying closer attention to their retirement programs, while management and investment strategies have come under new scrutiny. At the same time, a variety of legislative changes regarding the management, administration and operation of 401(k) plans are going into effect. Those two significant developments herald what is a potentially exciting opportunity for bank executives and financial professionals: the chance to make changes to their existing 401(k) programs in ways that will add real and lasting value.
For the most part, HR personnel and executive leaders across a range of industries have focused on compliance issues and the operational realities — the figurative nuts and bolts — of how to respond to the upcoming regulatory changes. Increasingly, however, forward-thinking organizations are beginning to understand the value that can be realized from this transition period. When executed correctly, a thoughtful, strategic and responsive approach to updating and upgrading your 401(k) program can improve communication, boost employee participation and morale, and ultimately have a positive financial impact for employers and employees alike.
Banks and other financial institutions — who tend to benefit from an employee population that is generally more financially savvy and has a more sophisticated understanding of the power of sound investing and the value of a company funds-matching program — are in a particularly advantageous position to get maximum impact from well-designed changes. For those banking professionals looking to not only adapt and respond to the upcoming changes, but also to leverage this historic opportunity to effectively communicate the value of a 401(k) to their organizations, modify or upgrade their existing programs, and further augment the role their 401(k) plays in their benefits packages, here are some of the key techniques and communications strategies to focus on in the months ahead:
Clear and Consistent Communication
The depth and breadth of the upcoming suite of 401(k)-related legislative changes are significant — more so than the last 20 years. Given this alteration to the 401(k) landscape, the need for clear and consistent communication from executive leadership is all the more important. The lion’s share of the new rules have to do with new levels of clarity and transparency with regard to how plans are funded and administered — and employees will be inundated with new information that they need to process. It is wise for employers to be proactive to help shape the tone of the discussion. Anticipate questions, leveraging your employees’ understanding of the financial and operational details of their 401(k) plan to help them appreciate the value of the plan, and to introduce them to new opportunities. When handled correctly and proactively, a strong communications strategy can improve participation and transform a situation that could have been characterized by questions and uncertainty into one that inspires loyalty and enthusiasm.
Clarify New Benchmarks
One important piece of the new regulations is the Department of Labor’s 408(b)(2) provision. Essentially, the provision stipulates that plan sponsors are responsible for ensuring that the fees they are paying to 401(k) service providers are commensurate with the services they are providing and fall within an accepted standard range of fees when compared to the national marketplace. New benchmarking reports will be required to compare fees and programs to a standard of “reasonableness.” Unfortunately, opportunities for misinterpretation are abundant.
A critical next step is to not only complete a plan review to compare fees and determine reasonableness, but to prepare to explain the specific details of the services they provide, and the value proposition of those services. Traditional metrics such as asset growth, employee participation and average participant deferral rate will continue to be an important way to evaluate new and evolving programs, but banks should also consider more sophisticated strategies such as tracking the percentage of employees enrolled in a managed account, as well as recording an “on track percentage” to determine what percentage of employees are on track to retire.
Quality employee feedback is always helpful, but it is critically important in a voluntary program where employee participation can be significantly impacted by enthusiasm and collaborative engagement. Employee 401(k) participation tends to be relatively high at banks and financial institutions, which makes understanding, appreciating and prioritizing participant concerns potentially even more impactful. The best 401(k) programs are not top-down dictates, but rather mutually beneficial arrangements that evolve and respond to the needs of participants.
There are a number of ways to get constructive employee feedback, and opportunities to do so will be even more abundant during the upcoming transition period. Pre- and post-enrollment feedback sessions are a good way to keep your finger on the pulse of how employees are responding to the new rules and new information. To that end, one of the key factors in the selection of a 401(k) plan management and advisory firm should be evaluating which candidates offer robust and consistent personal consultation and one-on-one employee advisory sessions.
Bank On It
Due to the fact that bank employees and financial professionals tend to have somewhat higher levels of education and compensation relative to employees in some other industries, there are some additional considerations that must be accounted for when starting a new program or changing an existing program. While some of those considerations come in the form of added complexity (employees who earn salaries over $150,000, for example, are not allowed to contribute more than 2 percent above the average employee contribution, and banks must institute an annual participation test that compares participation rates across different classes of employees), many of those industry-specific characteristics are not obligations, as much as they are opportunities.
By keeping employees informed and engaged throughout the transition process to the new regulations, bank leaders can turn reactive uncertainty into proactive enthusiasm and appreciation. By getting out ahead of these looming 401(k) changes, banks can put themselves in the enviable position of implementing communications strategies that can have a direct and positive impact on everything from recruiting to the professional culture. The end result will not only be higher plan participation, but also employees who are more productive, loyal, and financially and professionally secure. That is a strategy worth investing in, and a development that helps everyone’s bottom line.
Mark Wayne is with Freedom One Financial. For more information, visit www.FreedomOneFinancial.com.
Copyright (c) September 2012 by BankNews Media