Understanding your 401(k) – Education is Key
Though it goes without saying that participation in a retirement plan is one of the most important decisions that employees can make, it might be one of the least understood. The 401(k) plan is one of the most popular retirement savings vehicles in the United States, however CNBC reported in 2019 that 63% of Americans don’t understand exactly how it works. Maybe this is due to the often-confusing legal “jargon” found in the fine print that disallows the average person from fully comprehending the full scope of their plan.
At the conclusion of The Plan Sponsor University (TPSU) Fiduciary Education Program held in Alpharetta, Georgia, Founder and CEO Fred Barstein spoke with Plan Sponsor Jyotsna Vanapalli, a HR & Operations Manager for a legal non-profit and small firm. Vanapalli proposed a way to give sponsors greater understanding with an idea to create an interface (A.I., app, etc.) in which employees can search legal terms, ask questions, and increase financial literacy. Potentially, it could provide a way to receive greater understanding for fine print and legal terms. It’s an idea that may be worth looking into, as 40% of Americans don’t understand 401(k) fees. Many don’t fully understand how fee structures work, while others are clueless as to fees being associated with their retirement plan at all. Even further, many do not fully understand fee structures in general, while some are unaware there are fees associated with their retirement plans or how much these fees accumulate to. About 64% of those surveyed either thought they weren’t paying any administrative or investment fees in their 401(k) plans or didn’t know if they were.
Read the Full Transcript Here:
Fred Barstein:
This is Fred Barstein, CEO and founder of TPSU, where we just completed a program in Alpharetta, and I am here with Jyotsna.
Jyotsna:
Yes.
Fred Barstein:
I got it right. Okay if we ask you a few questions?
Jyotsna:
Glad to answer.
Fred Barstein:
First, tell us a little bit about yourself and the size of your organization.
Jyotsna:
Sure. My name is Jyotsna and I work for a legal nonprofit here in Atlanta. We’re a smaller firm, about 30 people right now. However, we anticipate growing to 50 in the next six to nine months.
Fred Barstein:
Good luck hiring.
Jyotsna:
Yeah, exactly.
Fred Barstein:
In the program today, you were asking our panel or asking people about how you try to make things simple, and sometimes the industry doesn’t do that. Tell us what you would ask and what the issues are.
Jyotsna:
I know that the way people learn about benefits needs to change, and what I try and do is encapsulate things in simple terms. Then, unfortunately, I have to send them documentation that is often full of jargon, small print, very difficult to understand-
Fred Barstein:
Right.
Jyotsna:
… and it really puts them off and makes them feel like they can’t participate in what we’re trying to offer them.
Fred Barstein:
Right. Because it’s all for legal and liability, but it doesn’t. If you were in charge of the world, what would you do? How would you change it?
Jyotsna:
I would really like a simplified interface so they could ask the questions, perhaps it’s AI driven, perhaps it’s an app that they can play around with on their phone to say, “If I invest this much or if I save this much, this is what it means. What is a fund?”
Fred Barstein:
Make it interactive.
Jyotsna:
Maybe even a little bit of a game or fun video something.
Fred Barstein:
Right. If they want to know the legal, they can just say, “Oh, I want to know more about this, but not,” right.
Jyotsna:
Right.
Fred Barstein:
We tend to give them the legal first and not make it fun.
Jyotsna:
Yeah.
Fred Barstein:
Yeah.
Jyotsna:
It can be off-putting to people who know they need to do it, but then feel like they’re not smart enough or they don’t have enough information.
Fred Barstein:
Right.
Jyotsna:
That shouldn’t be the reason why people don’t participate.
Fred Barstein:
People don’t like to feel stupid, right?
Jyotsna:
Right.
Fred Barstein:
Yeah. No, that’s great. Final question, couple of things you learned. How was the program today?
Jyotsna:
Love the program, and I will tell you that one of the biggest things for me, this is the third time I’ve attended one of the courses, always learning something new. Today, specifically the importance of cybersecurity and becoming aware of how the threats in the cyber world will impact us as plan sponsors and what we need to be doing proactively.
Fred Barstein:
Right.
Jyotsna:
Another thing is this time we had an interactive session with others, so I got to have a small group discussion with experts saying, “How do you do it? Or how do you handle this problem?”
Fred Barstein:
You don’t get that virtually, right?
Jyotsna:
No.
Fred Barstein:
Yeah, I know.
Jyotsna:
No.
Fred Barstein:
That’s unfortunate. Well, thank you for your time today.
Jyotsna:
I really appreciate being here.
Fred Barstein:
Thank you for watching 401kTV. Stay tuned.
