Should Your Plan Have an Education Policy Statement (EPS)?. The Department of Labor doesn’t require qualified retirement plans to have an education policy statement (EPS). But should your plan have one? Well, maybe. Here are some thoughts on why you should consider adopting an EPS for your plan.
It’s a no-brainer that strategic, effective participant education and communication programs that focus on financial and investment literacy make an impact when it comes to improving retirement outcomes. Well-informed participants generally save more for their post-working years because they start earlier and understand the significance of putting money aside for the future. They also tend to allocate their assets more appropriately for their age and stage in life and have better-diversified retirement plan portfolios. When it comes to boosting retirement readiness, knowledge truly is power.
And to be candid, it’s up to plan sponsors to make sure employees are well-educated about their retirement plan benefits, particularly when it comes to how they invest their contributions. The majority of employees lack the knowledge necessary to make smart decisions about how to self-direct the assets inside of their retirement plan accounts. Without adequate education and direction, they are more likely to become confused, lost, and disengaged.
If you’re partnering with a plan advisor, be sure to tap their expertise and involve them in the education program, too. Advisors can lead general education meetings to help participants learn about the plan’s investment funds. An even more effective tactic — advisors should schedule one-on-one sessions with plan participants where they can help provide more personalized financial and investment guidance.
It bears mentioning that employee education programs can and should be holistic, encompassing not just investing, but all aspects of financial wellness, from budgeting and paying down debt to how compounding works and how to save for current and future financial obligations.
With all that said, what’s an education policy statement (EPS), and why should you consider implementing one in your plan anyway? In short, an EPS is a blueprint for how the plan fiduciaries will implement an employee education program for the plan and how they’ll make sure it’s meeting established goals. It’s often seen as part of or as an extension of, the plan investment policy statement, a document that details how the plan’s fiduciaries select the investment options and how they’ll monitor and evaluate the performance of those investments over time (more on the IPS in a future article).
Under ERISA law, “participants [who have the option to self-direct their retirement plan contributions] must have the opportunity to 1) exercise control over their individual account; and 2) choose from a broad range of investment alternatives.” In addition, they must have
“…the opportunity to obtain sufficient information to make informed investment decisions.” A formal EPS can help plan fiduciaries document how they’re meeting this requirement.
So let’s say your plan committee votes to adopt an EPS. Now what?
There are no hard and fast rules for how an EPS should be structured. In general, however, it should highlight five basic areas:
Purpose: What will the education program accomplish, and how will its success be measured?
Plan objectives: How will the education program impact participants’ retirement readiness in terms of plan participation, deferral rates, account balances, and asset allocation?
Education goals: These may include improving financial literacy and retirement readiness, helping employees optimize their savings opportunities in the plan, and meeting ERISA participant communications requirements.
Metrics: How will the plan measure the education program’s success and overall effectiveness? Will industry benchmarks be used? How often will results be measured?
Roles and responsibilities: In short, who’s doing what? Typically, those involved in the employee education process include the plan sponsor, advisor (if applicable), and the plan’s service provider. It may also include a third party administrator (TPA) and/or record keeper.
If you’re looking for some guidance in writing an EPS for your plan, you can find examples here, here, and here. These samples may provide a solid foundation for creating an EPS that meets the unique needs of your plan and participants.
To reiterate, an EPS isn’t mandatory under current regulations. But it may be a good way to document how, specifically, the plan intends to implement an education program and measure its success, and ultimately, help participants be better prepared for retirement.
