401(k) Education is still failing! Selling a product makes it worse.

401(k)s are one of the most important retirement vehicles that we have. But despite this, it seems like 401(k) education is still lagging.

The market volatility has caused the balances in most 401(k)s to decrease and many employees are not educated on how to properly manage their retirement accounts.?Pain from inflation has added to those worries for employees that participate in 401(k) plans across the country. This is only part of the workforce, as unfortunately many employees are not participants. Many people work for a company but fail to take full advantage of the benefits the company offers. In many cases, this is due to a lack of discretionary income that could be allocated to the 401(k) contribution. ?In many other cases, it is due to a lack of financial education in terms that are understood, that make sense, and that are clear enough to elicit action.

Financial literacy is a very important topic for both employers and employees. This is because it affects the employee’s 401(k) balance and most decisions related to their way of life, and ultimately their cost of living. 401(k) education is still lagging in the United States despite the growing need. Employers are not doing enough to educate their employees on the benefits of 401(k) plans, or how to balance them with other aspects of financial stability. Some companies, such as Google, have started to offer free financial education workshops for their employees. This has been done in order to help them better understand how they should be managing their finances and to increase understanding of investment offerings in general.

In the past few years complexity of the available offerings in the marketplace has risen with the introduction of Crypto-related investments. Many jumped at the opportunity to make a quick buck, and invest in all kinds of Crypto, without having the faintest idea of how to due-diligence such complicated and novel assets class or fully understanding what it does for them or how it works. In our experience, many employees are still unclear or not fully informed on what the 401(k) options and investments are or do, so how can they be so well-versed in crypto? The answer is: they’re not, but it is their hope that they might win for once after feeling dazed and confused for so long on everything financial. Employees need more information about how 401(k)s work and how their can take full advantage of such plans as it relates to matching formulas offered by employers, catch-up contributions, or ROTH options.

Some in the financial industry have defaulted to the usual solutions by creating easy, but not creative, solutions: more financial products! The last thing an employee/participant wants to hear is:” Well, we have this product for you, if you don’t understand what an inverted yield curve does to the long and short-dated assets, and the P/E ratio of equities.” This is the jargon employees and employers hate to hear as it makes them feel stupid, pressured, and overwhelmed. The solution for some in the financial industry is to place money into another program, in this case called “managed,” obviously for an additional fee, so that the program can do what the employee/participant cannot do, or understand on their own.

The problem with this setup is not the offering but the premise.

The premise is that the financial industry tried and could not find the solution to the retirement equation, when in reality they did, even if in part, as there is no single solution for all.

That solution is called: Target Date Funds.

Target Date funds invest assets on a sliding scale based on age-based risk until the employee/participant retires on the chosen/desired year. The sliding scale becomes more conservative as the date of retirement (or age) approaches. It continues to invest for an additional 10 years into retirement until it converts into a retirement income fund. Genius! Great idea!

Well, not so fast! When the fund managers saw that assets were fleeing from other investment funds into Target Date funds, and the fees were being driven lower and lower, they started to cast doubt on what so far had been working as intended. Suddenly, Target Date funds were “riddled with issues,” like: portfolio management process violations, Sharpe ratio exposure, duration mismanagement. Don’t worry though, investor/employee/participant, because for another 0.5% on top of what you are paying, the managed programs can do exactly what a Target Date fund does, but make more money for those fund managers while leaving you similarly confused.

This is not how we serve our clients, our employees, and our partners. We need to invest in educating the broad population of employees and participants.?We have an obligation as experts and fiduciaries to use the incredible array of tools and technology to reach many of these employees/participants on their phones and tablets and explain in a plain and understandable language how things work. We need to invest more resources to make these tools available in other languages as well, which is a huge missing piece in almost all retirement plan websites and financial education programs.

Let’s deliver more expertise and support, and less product, and the result will be amazing.

Ardian Hasko is a C(k)P? - Certified 401(k) Professional, a Financial Advisor with a specialty in corporate retirement plans, financial education, and wealth management strategies. He's a Managing Principal of the Prudent Fiduciary Partners Group at B. Riley Wealth Advisors, a B. Riley Financial Company. Any statements or opinions expressed in this article are those of the author and neither represent nor are indicative of B. Riley Wealth Management’s overall opinion.?For more information or for any questions please reach out directly at [email protected]??