The actual level of education and comprehension of the typical participant of a specific plan is the measure of this standard. This means that the complexity or simplicity of the information provided to participants will vary from plan to plan.

Since the knowledge of an experienced Certified Public Accountant in a large accounting firm is very different from an employee of a small business, it can be difficult to determine the level of the participants' financial understanding. Even if a plan sponsor provides a glossary of terms, the average participant may still not understand the principles of investing.

It is, therefore, necessary to raise the level of knowledge of all participants through educational programs. By offering these services, plan fiduciaries can reduce their liability.

Financial advisors can aid their clients by developing participant fee graphs and comparative investment charts. However, there are other opportunities presented by 404(a)(5). Advisors can help their clients to mitigate the risk of providing overly complex information by offering investment concepts education, in addition to other participant education programs.

Ideally, the education programs should be outlined in an Education Policy Statements, so participants know what information is available to them and plan sponsors can cement their intent to comply with the 404(a)(5). Though uncommon, these statements offer a number benefits to all parties involved.

Education Policy Statements

An EPS describes the objectives of the education program, the frequency of the informational meetings that will be held for participants, the educational investment topics to be covered and any other relevant information. An EPS provides an overview of the typical education provided to participants. Statements also help plan sponsors and fiduciaries describe and document their ongoing efforts at providing the resources necessary for participant success. This contributes to satisfying the requirements for fiduciary prudence.

Not only do participants receive the knowledge they need for investments, but sponsors can also benefit from education by increasing employee retention within the plan; reducing their liability; facilitating communication between them and their employees; benchmarking results; and enhancing employee awareness of the plan, investments and finances, in general. For advisors, the creation and execution of EPSs generates a value-added service for their clients.

The elements of an EPS

An EPS has five major components:

1. Purpose and Background - This section of the document explains the basics of the plan, such as the plan name, the plan type, the current assets, the number of eligible participants and a list of service providers. The reason for having the EPS is also stated, which is typically to retain employees by offering continuing employee investment education.
2. Plan Objectives - The primary goals and objectives for the education plan are outlined under this section. This includes raising the level of employee readiness for retirement by: establishing the official criteria for observing, evaluating and analyzing the plan's service providers; maximizing employee enrollment in the plan; assessing the adequacy of funds at retirement; assisting participants in setting their retirement plan goals; etc.
3. Roles and Responsibilities - This area identifies which individuals are responsible for which plan objective. This normally includes plan sponsor, fiduciary, the financial advisor and record keeper. 
4. Performance Standards - In this portion of the EPS, the specific goals for the education plan are outlined. This also includes the plan's metrics for measuring the plan results. 
5. Results - This section sets specific timelines for evaluation and assigns a grade to each area evaluated, which is particularly important since this will identify any weaknesses within the education plan.

The EPS should also include a list of investment materials that is provided to participants, as well as a list of topics discussed at participant education meetings. Subjects, such as enrollment, the importance of participation, risk/return, compounding, asset allocation, diversification, mutual funds, stock, market volatility, rollovers, etc., are typical concepts that participants should know and understand at the end of their education session.

Financial advisors can also provide information regarding the comparative investment chart that the participants receive. However, it is important to remember that this piece of education cannot be construed as advice. A disclaimer may need to be made before explaining the data contained in the charts.

Financial advisors should not answer any questions about specific investment choices, but only explain the information as it is presented, including clarifying unfamiliar investment terms and the different types of investments available. If pressed to give direction, advisors can ask the participant or participants, who are interested, to meet after the session and retain the services as an individual investment counselor.

The standards of disclosure created by the DOL encourage a broader range of education for participants, which not only provides a variety of benefits for plan sponsors, fiduciaries and participants, but also presents opportunities for advisors to offer value-added services by helping their clients develop Education Policy Statements.

Remember, the deadline for participant disclosure is May 31^st, 2012. Now is the time to discuss these issues with clients. Financial advisors should ask their clients if they have an EPS. If no EPS exists, this is a great opportunity to explain how it can help the client reduce their risk as a plan sponsor and fiduciary, as well as aid in employee retention.