The famous Hawthorne behavioral experiments at AT&T Co.'s old Western Electric Co. might provide some insight in assessing the value of 401(k) investment education programs.
Surveys show education programs increase participation rates.
Sponsors, consultants and bundled providers of record keeping and money management services, who generally conduct or commission the surveys themselves, use the results to justify their programs and the quality of their content.
Yet the Hawthorne experiments might indicate the quality of the content of such educational programs has little bearing on the participation rates of employees in 401(k) plans.
The increased participation might simply stem from the fact employees perceive the company as showing more interest in their well-being.
In other words, the quality of the content of the programs doesn't matter.
The Hawthorne experiments, which date to the 1920s, began as a study of worker productivity.
The experiments adjusted the lighting, in part to find the optimum level to enhance production. The experiment found that when lighting was increased, productivity went up; and when lighting was decreased, productivity continued to rise.
The researchers concluded productivity increased not because of lighting adjustments, but because workers perceived management was paying more attention to their well-being.
Like the Hawthorne experiments, the extent of 401(k) education programs is a kind of enlightenment for employees.
Now, no one would suggest eliminating 401(k) education programs, even if their value may be more in the attention employees perceive the sponsors as showing than in the content of the programs.
Perhaps sponsors can experiment with such education programs.
For one, they might reduce the content to the basics on asset allocation but increase the frequency of the distribution of materials or presentations.
For another, they might expand the content to more sophisticated investment aspects of their plan, but reduce the frequency of distribution or presentation.
Finally, they might reduce the content and reduce the frequency, or expand content and increase the frequency.
The results in terms of participation rates may prove revealing.
Certainly employers have to do more to educate employees on 401(k) investments.
For both employees and employers, 401(k) plans are unique in the workplace.
For employees, it is a benefit for which they bear a large part of the responsibility for managing and determining its ultimate value.
For employers, it is an educational or training program from which the company derives no direct benefit in terms of its production of goods or services.
At the same time, whether an employee does well or poorly in managing his or her 401(k) assets will have no direct bearing on that individual's future position with the company in terms of promotion or standing.
For these reasons, employers, because they sponsor the 401(k) programs, need to do better studies on the effect of investment education programs on employee participation and portfolio skills.
They should seek outside research into their plans.
Otherwise, employers, along with consultants and investment managers, could be developing the wrong kind of programs, slowing the development of better educational programs.
As a result, employers could be spending more for their educational programs than they need to spend.
As the Hawthorne experiments showed so long ago, more lighting might have the same effect as less lighting in developing optimal productivity.