Working with an investment committee and consultants, plan sponsors can make thoughtful purchases of investment services.
But what about buying 401k education services? Could the differences be something like this?
Buying Investment Services
The plan sponsor says, “Ok potential investment manager, let’s hear your quick pitch.”
The manager says, “Our newest investment fund is built by financial management and marketing experts…and it;
* Features a highly creative approach,
* Complements individual styles,
* Reflects the latest trends,
* Emphasizes ease and enjoyment,
* Sets a higher mark for best practices, and
* Appeals to sophisticated employers like you.”
And the plan sponsor says…
“No sale. I didn’t hear about aligning with our plan policy or exceeding benchmarks. Goodbye.”
Buying Education Services
The plan sponsor says, “Ok potential 401k education provider, let’s hear your pitch.”
The provider says, “Our newest education program…”
…and oddly, the education provider gives the same responses as the investment manager.
And the plan sponsor says…
“You’re hired! That’s exactly the education service we want.”
A Low Bar for 401k Education
Here’s the bad part. The education service this plan sponsor is buying is known to fail.
Built by financial management and marketing experts. Unfortunately true. In the 1980s – when 401ks were introduced – finance professionals created 401k education by editing mutual fund sales materials. Today, much 401k ed remains heavily investment-weighted and jargon-infested.
But worse, 401k ed was never designed for young, non-numbers-loving people who are yet-to-be-motivated to learn about something they believe they can put off 20 or 30 years. And still today, virtually no learning experts or cognitive scientists have been involved in improving 401k ed.
This has contributed to making 401k ed the largest failure ever of adult education.
Features a highly creative approach. Holographic presentations, whiz-bang phone apps, scratch and sniff booklets, and other “creative” things can be fine. But creativity is far less important than a carefully crafted curriculum. “Creative” might grab employees’ attention for a short time. But a curriculum constructed with rigorous academic content is the most critical element in education. Ask a learning expert.
Complements individual styles. If people say they learn best in groups, or by reading, or by listening to a podcast on a beach – whatever – then shouldn’t that be the best way to deliver their education? Here’s the bubble breaker – there is no science that supports learning styles. None. Yes, people have preferences. But science is yet to show that preferences or styles improve learning.
Reflects latest trends. Science matters more than fads. Trendy education techniques rarely outperform proven learning principles. One hundred years ago, Thomas Edison said his invention of motion pictures would supplant teachers.
The latest fad could be attractive to buy because the current approach isn’t working. But if a new approach does not help employees learn what they need to know, it’s just a new way to fail. Ask for proof the new fad or approach works.
Emphasizes easy and enjoyment. Learning shouldn’t be painful. But if people are lead to believe the task they are learning will be fun and easy, many of them will likely give up quickly when they find it’s actually challenging. An “It’s easy to build a big 401k account” messaging can trigger a form of learned helplessness.
Don’t rationalize that if the education isn’t very good, it can’t hurt. It can do lasting harm. You don’t want employees thinking, “I didn’t get much of what the 401k teacher said. It’ll be a long time before I’ll start thinking about 401k.”
This could apply to showing young employees a “How much you’ll need to retire” number. A “black box” calculation of a number 30 years in the future made with dozens of hidden assumptions can also do harm. To be meaningful and have a positive impact, adults need to be involved in learning – not just told an expert’s answer. As with all educational techniques, showing “your number” should be scientifically tested before applied – is it positive, meaningful, and motivational?
To be clear, it’s essential that young employees discover and believe a realistic cost estimate to pay for the income they’ll want when their full-time career ends. It will likely be the largest purchase they will ever want to make. But telling them a number isn’t the best way.
All aspects of 401k ed should involve more discussing, less telling. Here’s a short example of how to help employees discover a realistic future price. “Let’s talk about $500 monthly checks. Say you want them for 25 years – say from age 60 to 85 or from 70 to 95. So, help me here; one year of $500 checks is 12 months times $500 (wait for the audience)…yes, $6,000 a year. Now 25 years times $6,000 is (pause)…yes, $150,000. Got it? $500 a month for 25 years is $150,000. So how many $500 checks will you want each month?” This starts the discussion. It’s intended to create the motivation for them to want a more sophisticated estimate and to learn about the assumptions. Most elements of 401k can be effectively taught as a discussion.
Sets a higher mark for best practices. In 401k ed, “best practices” is usually a marketing phrase rather than a scientifically proven approach. Again, ask for proof.
Appeals to sophisticated employers.“Most other plans were using ‘Vandelity’ so we went with them too.” This can provide “career cover” for plan sponsors when the 401k ed program fails. But knowingly using a failed approach is cruel to employees. Insist on 401k ed that works.
To Get Better, Buy Better
Your 401k ed program will be only as good as what you buy. If you’re not knowledgeable in adult education and learning science, seek help from a university-based, adult-learning expert. Or at least require potential providers to have evidence that their educational materials assure adults will learn how to use a 401k successfully. Isn’t it better to try to improve a broken education program – not perpetuate it?
Dennis Ackley