Back to Basics During COVID-19

Getting back to the basics during difficult times can lay the groundwork for future success.  This holds true for employers grappling with the workforce consequences of COVID-19.

 Many sponsors of 401(k) plans decided – as authorized by the CARES Act – to approve plan changes permitting participants to take significant distributions or loans if their family members or finances were harmed by COVID-19.  This decision helps employees meet serious immediate needs.  By taking a second step, plan sponsors can help employees secure their financial future.

This second step involves developing a basic financial education strategy tied to the company 401(k) plan.  This can help employees make it through COVID-19 and build toward a secure retirement when our economy returns to its “new normal.”

Employers will want to consider these initiatives as part of their financial education strategy:

  •       Calm employees’ fears during market volatility by communicating that the best long-term action is to stay invested in a diversified portfolio that will benefit from ultimate market rebounds.
  •       Encourage retirement savings during good times and bad through payroll deferrals to the company 401(k) plan.
  •       Urge employees to take advantage of financial advisory guidance and education provided through the 401(k) plan.

Existing company communications should be inventoried to determine ways in which messages can be delivered to employees.  Also, sponsors should turn to plan service providers – including their 401(k) plan advisor and recordkeeper – for communications content, individual investment guidance and financial education materials.

Company communication vehicles could include a regular newsletter, scheduled emails from the CEO, company-wide meetings, a company intranet site, and benefits announcements.  Some effort to encourage retirement savings and provide directions to access investment guidance and financial education should be contained in any company communication.

A good 401(k) advisor will offer a wealth of resources to provide financial education to participants.  First, the advisor should be available throughout the life of the plan for a scheduled appointment to discuss plan investments – via telephone or in person.  During periods of market volatility, such as we are experiencing with COVID-19, participants should be reminded how they may schedule an appointment with the advisor. 

During COVID-19, the advisor also should be able to provide financial information to calm participant fears.  A history of past markets, for example, will demonstrate how recovery and significant economic growth followed each previous recession, and how investors who maintained diversified portfolios recouped losses and went on to enjoy investment growth.

COVID-19 creates the opportunity to encourage participants to access basic financial education to help them organize current finances, so they are better able to weather future economic storms and eventually reach a secure retirement.  Education can include written materials, videos and webinars, all backed up by the opportunity to speak with the plan’s financial advisor.

A Financial Basics module can be particularly valuable to help participants understand the importance of setting aside savings of three to six months of their income.  A Retirement Planning module can help participants identify specific steps to help them ready for retirement.  Other instructional areas can relate to home mortgages, insurance purchases, paying for college and preparing for other life events.

Some recordkeepers offer interactive financial education.  Often included are self-assessments participants may take to determine which financial actions are most important for them given their current circumstances. 

COVID-19 has disrupted the world and created economic challenges for employer and employee alike.  Companies that sponsor 401(k) plans – after providing economic assistance to participants as they are able – can brighten employees’ economic future by getting back to the basics.  Plan sponsors can develop an effective financial education program and a strategy to promote involvement in it.

This blog is written to help make the lives of plan sponsors easier in the process of meeting legal requirements under ERISA for their defined contribution plans.  Please understand that reading this blog should not alone take the place of a one-on-one consultation regarding the needs of your specific plan and hence cannot be a guarantee against fiduciary breach.