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Importance of Employee Education

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Providing comprehensive 401(k) education to employees is crucial for several reasons:

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  1. Increase Participation Rates: Employees who understand the benefits and tax advantages of a 401(k) plan are more likely to participate and contribute, boosting their retirement savings.

  2. Informed Investment Decisions: Education helps employees make informed decisions about investment options, risk tolerance, and asset allocation based on their individual goals and time horizons.

  3. Appreciation of Benefits: When employees understand the value of employer contributions, low fees, and tax-deferred growth, they appreciate the 401(k) as a significant part of their overall compensation package.

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Understanding the Benefits of Low Fees

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Highlighting the impact of low fees is essential, as high fees can significantly erode retirement savings over time:

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  • Compounding Effect: Lower fees allow more of an employee's contributions and investment returns to compound tax-deferred, potentially resulting in substantially higher account balances at retirement.

  • Benchmarking: Educating employees on benchmarking the plan's fees against industry averages empowers them to evaluate the reasonableness of costs.

  • Fiduciary Responsibility: Explaining that employers have a fiduciary duty to offer reasonably-priced investments reinforces the importance of low fees.

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Understanding the Mechanics​

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  • Investment Options: Providing education on the different investment options (e.g., index funds, target-date funds) and their respective risk/return profiles.

  • Asset Allocation: Stressing the importance of proper asset allocation and diversification based on an employee's risk tolerance and time horizon.

  • Tax Benefits: Highlighting the tax-deferred growth and potential tax credits or deductions for contributing to a 401(k).

  • Employer Contributions: Explaining any employer matching or profit-sharing contributions and the associated vesting schedules.

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By comprehensively educating employees, a 401(k) administrator can drive higher participation, better investment decisions, and an appreciation for the plan as a valuable employee benefit.

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*Abernathy Daley 401k Consultants is an affiliate of the Abernathy Group II, a registered investment advisor, and does not offer investment advice.

Abernathy Daley 401k Consultants

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530 5th Avenue

17th Floor

New York, NY 10036

212-293-3499

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