Trust and education are some of the more favorable characteristics sought in retirement plan providers, as well as key drivers to increasing employee engagement. However, that education is lacking, as most employees have a poor understanding of retirement language.
A quarter of employees underestimated how much they knew about personal finances, reporting low levels of confidence, according to new research from the National Association of Retirement Plan Participants.
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People were more likely to understand terms like fixed income but were confused by the definition of terms such as basis points and actively managed mutual fund.
NARPPs study has produced a composite index of the critical factors that impact savings that are controlled or influenced by the service provider, which it calls the FELT score (financial empowerment, literacy and trust). The score aims to quantify how well plan providers are engaging and educating their plan participants, the level of trust that participants have in their providers and participants financial literacy with rates of deferral.
Employers and their employees are relying on service providers as partners in helping to secure a financially stable future. And now for the first time, we have data to evaluate and measure how well providers are helping people save, says Laurie Rowley, NARPPs co-founder and president.
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Trust in financial institutions in general is 13%, according to the FELT score, while the average satisfaction rating with providers education programs is 38%. The average objective financial literacy score, meanwhile, is 63% (calculated as the percentage of participants who answered the questions correctly.)
Current education materials are generally jargon-filled and complicated, and they often include a healthy dose of thinly veiled sales information people react negatively to these messages, especially millennials, adds Rowley. Its the 21st century, people expect and should demand simple, customized messages that are relevant and engaging.
A recent Bank of America Merrill Lynch report showed that last year, nearly four out of five active 401(k) participants in its plans who made a change to their plan made a positive one, by either starting or increasing their contributions.
Data for the NARPP study were conducted in April and included a random sample of responses from 4,368 active participants in 401(k) and 403(b) plans.
