The Pensions & Investments Investment Education Awards, whose winners were announced in the last issue, have generated more interest and comment than expected.
A number of plan sponsors and vendors have asked what criteria were used in the judging. The "initial brochures category" - brochures designed to introduce new employees to a plan, or to introduce employees to a new plan - and the "video category" were judged on the same criteria. The "ongoing communications category" used some, but not all, of the same criteria. The basic criteria were as follows:
The education materials should first of all emphasize early saving and regular saving. BellCore's video, entitled "Old age is no place for sissies," did so with wit, humor and brevity.
The materials should emphasize the costs of borrowing from the plan, and the dangers of failing to roll over any distribution from the plan. Few of the programs even mentioned these issues.
The materials should explain the power of compounding. All of the winning programs did this, and most of the others.
The judges also looked for a clear, simple definition of risk, and explanation of the relationship between risk and return.
The judges also looked for an explanation of how diversification can reduce risk. A discussion of diversification, or even a mention of it, was missing from all but the very best brochures and videos.
Most of the entries had illustrations showing the historic returns of stocks, bonds and cash. Relatively few, however, had any discussion of the impact of inflation on the value of an employee's retirement distribution.
The judges also looked for a discussion of the risk/return characteristics of the employer's own stock, and how it fitted with the other options, where that was an investment option.
The judges then looked for a discussion of each plan's investment choices. They looked for a clear definition, in lay terms, of the investment strategy of each option, and an indication of the relative level of risk of each. Again, the best brochures and videos had simple illustrations explaining the risk level of each alternative. The best also gave employees a vehicle for measuring the degree of risk they were willing to accept.
The judges also looked for a clear explanation of the company's matching contribution, if any, emphasizing that this was, in effect, an immediate return on the employee's investment. Relatively few entries made this point strongly.
Most entries explained the value of tax-exempt saving, and provided plan details such as how to join, contribute, change investment choices and withdrawal penalties.
The judges also felt the program should be strongly identified with the plan sponsor. They felt the plan sponsor should get credit from the employees for the program, not the vendor.
Finally, the judges looked at the clarity of the presentation, and the program's use of effective communication/marketing techniques to make the information appealing, understandable and memorable.