While many employers offer 403(b) plans to employees, most do not adequately educate the employees on the importance of retirement savings or promote participation in the 403(b) plan as a valuable employee benefit. Many fail to recognize the correlation between higher participation rates and earlier retirement patterns for older workers.
Employees often want information or assistance, but restrictions on access to advisors and the lack of general retirement information and plan specific information provided through the workplace creates barriers for obtaining help. Finally, efforts to ensure compliance with the technical rules may have inadvertently created obstacles for employers who might otherwise provide encouragement and education to potential plan participants. Procedures implemented by administrators often act as barriers for participants and materials designed to provide notice for employees may be too technical for employees to understand. Proper universal availability notices could satisfy all of the technical requirements while also providing information and encouraging participation.
There is a technical requirement for employers to provide “meaningful notice” to eligible employees at least once per year. Most employers have strategies for satisfying this requirement; however, these strategies are usually focused on satisfying the technical requirements rather than on meaningful communication with employees. Employers should have a standardized notice that could satisfy the technical requirements while also providing clear and concise plan information to eligible employees.
Employers should also be encouraged to provide additional information to employees to encourage them to participate in the employer’s 403(b) plan. The materials should include information on retirement planning, basic financial education and coordinating additional retirement resources, such as Social Security and pension benefits. Generic education materials and guidelines for implementing an education program should be provided to encourage more employers to educate employees on the benefits of saving for retirement. Finally, employers and their administrators should also ensure that enrollment procedures do not act as a deterrent to plan participation.
- A specimen “universal notice” is included in the NTSA Best Practices Guide for 403(b) and 457(b) Plans. It is recommended that either the employer or TPA complete the form with accurate information. Employers should use at least two different methods of delivering the notice to ensure that all eligible employees actually receive the notice. Suggestions for proper notice delivery are also included in the 403(b) Best Practices Support Materials.
- Employers or TPAs should develop a strategy for documenting the process and procedures for notifying eligible employees every year.
- Instructions to employees on the enrollment process should be incorporated with employee educational programs and be made available in seminar format, as presentations and online.
- Two generic educational slide presentations are included in the 403(b) Best Practices Support Materials section of this manual. They were prepared by ASBO International, a non-profit association of education professionals. One presentation is appropriate for public education organizations and the other was designed for 501(c)(3) employers.
- Guidelines for implementing an employee retirement planning educational program are included in the 403(b) Best Practices Support Materials. These guidelines were also prepared by ASBO International.
- Employers should identify potential communication partners, including the TPA, product providers or their financial advisors, and consultants who are willing to assist the employer in providing education to employees using generic materials that do not focus on individual products or investment strategies. Employers should consider membership in NTSA/ASPPA when evaluating potential communication partners because members are bound by a code of ethics and have expertise in the 403(b) marketplace.
- In a coordinated effort with its education partner, the employer should present a turnkey education package with one face-to-face meeting with employees. These efforts should include coordinating the different product provider efforts, simplifying the enrollment process, and introducing and defining the role of the product provider (or its representative) and the role of the TPA.
- Education materials and the universal availability notice must be updated as appropriate. Procedures should be developed to review materials to ensure that timely and accurate information is being provided.
- In more recent IRS audits, auditors request proof that the universal availability notice was received by all eligible employees. Even though this is not a statutory or regulatory requirement, the best practice is to provide a procedure to the auditor that describes how the employee received the communication and when. Some employers do get signatures from employees who do not participate to certify that they have received the Universal Availability notice.
Bill Fisher is a member of the NTSA Leadership Council, serves as Chair of the NTSA Professional Education Committee and is Director of Business Development for PenServ Plan Services, Inc..
More information on communicating a 403(b) plan to employees, as well as a host of other topics relevant to running and building your practice, can be found in the Best Practices Guide for 403(b) and 457(b) Plans. Information about the Best Practices Guide for 403(b) and 457(b) Plans is available here.
For a complete guide to 403(b) and 457 plans, contact NTSA for information on The Source, a reference manual for internal staff, advisory firms, TPAs, broker-dealers, and employers.