This document discusses the importance of developing an education policy statement for 401(k) plans. It notes that the shift from defined benefit plans to defined contribution plans has increased the responsibility of employees to manage their retirement savings. An education policy statement can help plan sponsors meet their fiduciary duties to provide participants with sufficient education and tools. It should include objectives like describing investment options and performance, key investment concepts, asset allocation, and retirement goals. The policy statement also specifies how education will be delivered through meetings, media, and interactive tools.

1. THE IMPORTANCE OF AN EDUCATION POLICY STATEMENT FOR 401(k) PLANS
Prepared by Douglas Dormire Powers1
BECKMAN LAWSON, LLP
On behalf of QP Steno, LLC2
August 12, 2015
1
Douglas Dormire Powers is a partner in the law firm of Beckman Lawson, LLP, in Fort Wayne,
Indiana, focusing his practice on employee benefits, including compliance and litigation. He has
litigated ERISA cases in federal courts across the country, and regularly represents clients before
the Department of Labor and the Internal Revenue Service. He is a frequent speaker on
employee benefits issues related to both retirement and welfare plans.
2
Jonathan Baltes is the CEO of QP Steno, LLC, in Fort Wayne, IN. His company is a
technology firm that provides services to those who oversee or service retirement plans. Its tool
is used to measure the reasonableness of fees based on committed time and resources by a
covered service provider. Additionally, the tool can be used by service providers to track trends
in employee behavior or by compliance departments to ensure that appropriate services are being
delivered by their representatives.

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EXECUTIVE SUMMARY
A retirement plan is one of the most important benefits an employer can offer to its
employees. However, the complexity of the regulatory environment and the importance of
retirement plan assets to participants’ well-being in retirement mandate an intentional approach
to administering the plan in a way that ensures that it meets it purpose. An education policy
statement can be an invaluable tool to help bring about these positive outcomes.
The need for an education policy statement becomes apparent when the current retirement
plan environment is put in perspective. Over the past 30 years, defined benefit plans that pay a
monthly retirement benefit to participants for their lifetimes have largely given way to defined
contribution plans in which participants accumulate retirement assets in plan account balances.
One effect of this trend has been to off-load most of the investment risk from employers to
employees. As a result, plan sponsors have an affirmative fiduciary obligation to provide
participants with the tools and knowledge necessary to meaningfully direct the investment of
their retirement assets.
From a compliance point of view, plan sponsors are faced with a dizzying array of
obligations with respect to their retirement plans. Many of these functions can be delegated to
third-party advisors and service providers, some of which may assume some fiduciary duty. The
plan sponsor, however, will always retain the ultimate fiduciary responsibility for the smooth and
compliant functioning of the plan. Hence, it is critical that plan sponsors put into place
intentional components related to operation of the plan. One of the most important of these
components is an effective education policy statement.
The development of an education policy statement begins with an assessment of the
essential components of the plan, participant demographics and plan participation data. With this
information, a plan sponsor can develop an education policy statement that addresses the
following key objectives:
• Description of investment options and performance
• Key investment concepts
• Asset allocation
• Retirement goals
The education policy statement should also address the means that the plan sponsor will
use to meet these objectives, such as how frequently it will hold participant meetings, what media
will be used to present information, and the extent to which other interactive tools are made
available to participants. The plan sponsor should review annually the effectiveness of the

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program of participant education as established by the education policy statement, then modify it
as needed.
I. OVERVIEW
a. The Relationship Between Defined Benefit and Defined Contribution Plans
To understand the relevance of an education policy statement in today’s employer
sponsored retirement plan environment, one must appreciate the profound shift that has occurred
with respect to such plans in the United States over the past 30 years. Federal law has encouraged
employers to sponsor retirement plans by providing significant tax advantages for both
employers that sponsor them and employees who participate in them.
The two types of tax-qualified plans include (1) defined benefit and (2) defined
contribution. A defined benefit plan can be described loosely as a traditional pension plan. That
is, the retirement benefit for employee-participants is a pension “promise” that typically consists
of a monthly income for life to retirees that is determined by the application of a formula that
takes into account and employee’s age, years of service and salary. No specific funds are
associated with any particular participant. Rather, the employer must annually determine how
much money it must contribute to the plan in order to meet its obligations to current and future
retirees based on the actual and projected demographics of participants, and assumptions about
investment performance.
Various types of benefits may be available under a defined benefit plan. The standard
“normal” form of benefit for an unmarried participant is a single life annuity that provides a
monthly income for the life of the participant. For a married participant, the standard form of
benefit is a joint and 50% survivor annuity that provides a fixed monthly amount to the
participant, and half that amount to the participant’s spouse, if the spouse survives the
participant. Other actuarially equivalent forms of benefit may be available as well, so long as the
spouse consents, including in some plans a single lump sum paid upon retirement.
A defined contribution plan, on the other hand, operates more like a bank account in that
each participant has an account balance into which both the employer (through profit-sharing and
matching contributions) and the participant (through salary deferrals) may contribute.
Contributions are tax-deductible and income that the account balance earns through investment
grows tax-deferred. A participant pays income tax on any retirement plan withdrawals, whether
from a defined benefit or a defined contribution plan, as benefits are distributed, typically during
the participant’s retirement years (except for Roth accounts).
A relative newcomer to the defined contribution landscape is the 401(k) feature that many
defined contribution plans include within their plan design. The “401(k)” refers to the section of
the Internal Revenue Code adopted in 1978 that permits participants to contribute some of their
own compensation to their account balances in addition to money the employer contributes. The

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401(k) feature has become so ubiquitous that many defined contribution plans are simply
characterized as “401(k) plans.”
b. The Convergence of Plan Sponsor Risk Aversion and Participant Control
Over about the past 30 years, the number of defined benefit plans has dwindled as defined
contribution plans have become more popular. This trend began in earnest around 1979 when
the dominance of defined benefit plans started to fade. By 1987, there were an equal number of
both types of plans in the United States. Today, among employers that offer only one retirement
plan, about 69% are defined contribution plans and about 7% are defined benefit plans. About
24% of employers offer both types of plans.
Contributors to this trend come from both sides of the equation. Employers have been
motivated by a desire to minimize the risks associated with fluctuating economic conditions and
plan asset investment performance that can involve wild swings in annual contribution
requirements, as well as getting out from under the high annual cost of maintaining a defined
benefit plan. Participants have been attracted by the concept of participant-directed investment
of their account balance in a defined contribution plan over which they can exercise control and
which is more portable in an economic environment that no longer values longevity at a single
employer.
With the bursting of the dot-com bubble in 1999 and more recently the Great Recession,
where many participants saw their defined contribution balances decline by a third or more,
many employees are beginning to rethink their preference for control over the security of a
guaranteed monthly pension that will last their lifetimes. Employers, however, are not likely to
embrace a resurgence of traditional pension plans any time soon.
The result of this long term trend has been a significant shift in the risk of ensuring
retirement security from employers to employees, as shown in Table 1. By changing from
defined benefit to defined contribution plan designs, employers have off-loaded the most serious
investment risks to their employees, including risks associated with investment performance,
inflation, longevity, and market timing.
Table 1: Comparison of Risk Assumption in DB and DC Plans
Type of Risk Who Assumes It
Defined Benefit Defined Contribution
Investment Employer Employee
Inflation Employer Employee
Longevity Employer Employee
Market Timing Employer Employee

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Accrual Employee Employee
Vesting Employee Employee
Employer Insolvency Employee/Taxpayers DC plan always fully funded
Salary Replacement Employer Employer
c. Why Education is Critical
A primary effect of the trend away from defined benefit plans and toward defined
contribution plans has been to require a workforce that is relatively unsophisticated about
investments to become managers of what for many employees is their largest single asset—their
retirement account balance. All parties therefore have a strong incentive to provide participants
with the necessary tools to be prudent managers of their retirement security. Employers may be
motivated by a combination of avoiding the risk of fiduciary liability and a sincere desire to do
what they can to ensure their employees enjoy a comfortable retirement. Employees, of course,
want to enjoy their retirement years without having excessive financial anxiety or the need to
continue working solely to generate adequate income on which to live.
The answer to this is for employers to ensure that they offer their employee-participants
the knowledge and tools they need to become effective planners and managers of their retirement
nest eggs. The most effective way to ensure this result is to provide an effective, ongoing and
understandable program of education.
II. REGULATORY FRAMEWORK
a. General Fiduciary Duties
Employers who sponsor qualified retirement plans face a daunting array of regulatory
requirements arising out of statutes, regulations and related guidance contained in the Internal
Revenue Code (“Code”) and the Employee Retirement Income Security Act of 1974 (“ERISA”).
Foremost among employer-plan sponsor responsibilities are ERISA’s fiduciary duties. In
essence, a plan sponsor must:
• Act solely in the interest of plan participants and their beneficiaries and with the
exclusive purpose of providing benefits to them
• Carry out their duties prudently

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• Follow terms of the plan document
• Diversify plan investments
• Pay only reasonable plan expenses
As a practical matter, plan sponsors delegate many of their fiduciary and other plan
obligations to third-party experts, including plan administration, custody of plan assets,
investment selection and monitoring, account recordkeeping, transaction processing—and
participant education. Delegation of these plan-related fiduciary responsibilities, however, does
not mean abdication. A plan sponsor will always remain the “named fiduciary,” and will
therefore ultimately be responsible for ensuring the smooth and compliant operation of the plan.
To the extent certain obligations are delegated, for example, the plan sponsor still retains the
responsibility to ensure that the third-party service provider is performing its services consistent
with the high level of care and expertise required of plan fiduciaries.
Failure of a plan sponsor to meet its fiduciary obligations can result in stiff penalties, and
even disqualification of the plan, with disastrous tax liability, interest, fines and other penalties.
Accordingly, employers have a strong incentive to take whatever steps are necessary to minimize
their fiduciary exposure.
b. The Role of ERISA § 404(c)
Most defined contribution plans permit participants to direct the investment of their
account balances. Allowing participant direction can be an means of limiting the fiduciary
liability of plan sponsors for the poor investment decisions of their participants, so long as they
follows rules designed to ensure that participants have the tools and knowledge needed to
intelligently manage their plan assets.
Those rules are found in ERISA § 404(c). They can be summarized as follows:
• The plan must offer a broad range of investment alternatives. Generally, this is
satisfied by having an investment menu that has at least three core options that are
diversified and have materially different risk and return characteristics. These
typically include diversified funds from equity (stocks), fixed income (bonds) and
capital preservation (money market) asset classes.
• The plan must provide participants with an opportunity to exercise control over
assets in their accounts, subject to reasonable restrictions. The plan can satisfy
this requirement by offering participants the opportunity to change investments as
frequently as appropriate in light of the volatility of plan investments—at least
quarterly. The plan may impose restrictions on participants’ investment directions,
such as limiting investment in the riskiest investment alternative to a certain
percentage of a participant’s account balance. In addition, participants must have
access to information that is sufficient to help them make informed election decisions.

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• Participants must be able to exercise independent control over their plan
investment decisions. Determining whether a participant acted independently
involves looking at the facts and circumstances of each situation. For example, a
participant does not act independently when he or she is subjected to improper
influence by a plan fiduciary in connection with the transaction.
• The plan must supply participants with certain information regarding the plan
and its investment options, including the following information:
o Regular and periodic disclosures of plan-related and investment-related
information.
o A notice that the plan intends to comply with ERISA § 404(c) and fiduciaries may
be relieved of liability for investment losses as a result of participant investment
decisions. This can be provided in the plan’s summary plan description.
o If applicable, certain information regarding employer securities offered as an
investment alternative under the plan.
Inherent in complying with the requirements of § 404(c) is the provision of investment
education to participants. A full-featured program of investment education will meet both
ERISA’s general fiduciary requirements and the specific requirements of § 404(c).
c. Fee Disclosure Regulations
Complicating the regulatory picture are recent fee disclosure regulations designed to help
plan sponsors meet the doubly-difficult challenge of (1) understanding all of the many ways
account balances can be eroded through a daunting array of provider and investment fees, and (2)
how plan sponsors communicate this fee information to participants in a meaningful way. The
provider-to-plan fee disclosure regulation relates to ERISA § 408(b)(2), which grants an
exemption to ERISA’s prohibited transaction rules for “reasonable” arrangements between a plan
and its service providers to provide necessary services. This part of the fee disclosure regime
goes into great detail as to what is “reasonable,” and has resulted in what many now concede is a
barrage of opaque fine print from providers that is of little practical use to an unsophisticated
plan sponsor who is nonetheless charged not only with obtaining fee information, but also
understanding and evaluating it.
The other half of mandated fee disclosure is found in the regulation associated with
ERISA § 404(a). This regulation relates to information that plan sponsors must provide to
participants, required to be written “in a manner calculated to be understood by the average plan
participant.” Regarding plan investment options, this regulation not only requires disclosure of
the relatively familiar expense ratio of each investment option, but also fees related to

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“commissions, sales loads, sales charges, deferred sales charges, redemption fees, surrender
charges, exchange fees, account fees and purchase fees.” Plan sponsors must also disclose
administrative expenses of the plan, as well as charges for services provided to individual
participants, such as qualified domestic relations orders and participant loans.
d. New Fiduciary Duty Standards
Finally, the DOL has recently issued new proposed fiduciary duty standards as
presumably the end product of an extremely contentious, multi-year process of expanding
fiduciary duties broker-dealers so that they are subject to the same high standard of conduct
required of service providers that provide discretionary services to plans. In essence, these
regulations represent a shift from the existing lower standard of conduct that requires a broker-
dealer merely to meet “suitability” standards; that is, a broker-dealer must determine that a given
investment is suitable for a potential investor under the circumstances. Under the new regulation,
broker-dealers who sell investment products to plans and in connection with IRAs must meet the
higher fiduciary standard that requires such providers to act in the best interests of participants.
Thus, this regulation widens the fiduciary net so that it captures a broader array of potential
service and investment providers to individuals with respect to their retirement assets, but does
not materially expand the existing fiduciary obligations of plan sponsors.
III. THE ROLE OF AN EDUCATION POLICY STATEMENT
a. An Intentional Approach to Developing Participant Retirement Security
The foregoing review of a plan sponsor’s fiduciary obligations with respect its defined
contribution retirement plan merely cracks open the door to a complex array of compliance
obligations that few employers have either the time or expertise to administer. The standard tool
plan sponsors turn to for help are third-party service providers that provide the requisite expertise
in the various components of the structure and operation of a plan.
Another critical tool that plan sponsors can use to ensure that they meet their fiduciary
obligations and enable participants to maximize the benefit that the plan can provide to their
retirement security is an educational policy statement.
A cousin to the more familiar investment policy statement, an educational policy
statement can provide a valuable road map for both plan sponsors and their participants.
Contrary to conventional wisdom, however, neither ERISA nor the Code requires that plans
adopt an education policy statement. Rather, it can be a resource that provides guidance to a plan
sponsor in meeting the complex array of regulatory guidance that describes its fiduciary duty
obligations, and helps impart essential information to participants that empowers them to take
control of their retirement plan assets and plan for a successful retirement.
b. An Aid to Plan Sponsor Fiduciary Compliance

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The benefit of an educational policy statement is not limited to participants. It can also
provide an intentional and comprehensive framework to assist the plan sponsor in meeting its
fiduciary duty obligations. It can help break down this critical part of a plan sponsor’s fiduciary
landscape into orderly and digestible bites. Such a framework can provide the content, manner
and timing of participant educational activities. When properly implemented, a well-crafted
educational policy statement can provide compelling evidence of a plan sponsor’s responsible
discharge of its fiduciary duties to participants. On the other hand, the best educational policy
statement, if ignored, merely collects dust on the shelf and helps no one. In the event of a DOL
or IRS audit, a dusty educational policy statement can support regulatory sanctions.
IV. EDUCATION POLICY STATEMENT BEST PRACTICES
At its heart, an educational policy statement is a detailed blueprint for the execution of a
meaningful program of participant education. It should be the foundation for an informative,
engaging and understandable educational experience for participants that enables them to direct
their plan account balances in a way that helps them achieve their retirement goals. A plan
sponsor can develop an educational policy independently, but often it will receive assistance
from a third-party advisor to the plan.
a. Assessment
Before developing an educational policy statement, it is important to assess the particular
needs of participants. A group of accounting professionals will have different educational needs
than a group of factory workers. The education program, and hence the educational policy
statement, must cater to the plan sponsor’s participant workforce. This process involves
gathering information about strengths and weaknesses in various aspects of the plan.
Things to assess include:
1. Employee demographics. This should include numbers of participants and
their age distributions.
2. Current participation levels. This includes items such as percentage of
employees who participate in the plan, average deferral rates, average
account balance, number of loans from plan assets.
3. Key plan provisions. Does the plan have automatic enrollment?
Automatic contribution increases? A qualified default investment
alternative?
b. Content

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i. Purpose
This section describes the plan sponsor’s commitment to provide effective participant
education through a formal plan of investment education. An example might be: “This
education policy statement provides a framework for [Plan Sponsor] to develop, implement,
monitor and evaluate a proactive program of participant education that assists participants in
meeting their retirement goals and [Plan Sponsor] in fulfilling its fiduciary obligations.”
ii. Objectives
1. Description of investment options and performance
This component of the educational policy statement is critically important because it helps
fulfill the plan sponsor’s fiduciary duty under ERISA § 404(a) to disclose to participants key
aspects of the plan. The recently implemented regulation under § 404(a) prescribes detailed
requirements for this disclosure. Investment option information must be organized in a format
that provides participants the ability to compare various investment options to each other so that
they can understand the relative risk/reward characteristics of different asset classes (such as
large-cap stock, balanced, and fixed income bond funds). Investment options within a given
asset class must also be compared to broad-based benchmark indices. These disclosures must
provide performance measures over one-, five- and ten-year periods. In addition, the plan
sponsor must disclose fund expenses, including total operating expenses expressed as percentage
of plan assets (i.e., an expense ratio), any other fees and expenses not included in the expense
ratio (i.e., sales loads, redemption fees, surrender charges), and the cost of specific transaction
related to the operation of the plan, such as qualified domestic relations orders and plan loans.
Plan sponsors should pay special attention to their descriptions of investment options that
are target date funds and brokerage windows. A target date fund typically is designed as a “fund
of funds” that references a specific retirement year for the participant. Its mix of funds is
designed to evolve from a more aggressive growth model during earlier years to a more
conservative mix as the participant nears the target retirement date. This option may be attractive
to participants who do not want to be “hands-on” managers of their account balances, yet still
want to ensure a reasonable return over the life of their participation in the plan.
Many plans offer a brokerage window as an investment alternative. This device allows
participants to establish a relationship with a brokerage firm and make specific investments in a
wide range of investment vehicles beyond the standard array of funds otherwise available in the
plan. This option can be exceedingly risky because of the ready availability of high-risk
investments. As a result, many plans limit the percentage of a participant’s account balance that
may be invested in a brokerage window.
Thus, much of the content of this part of the education policy statement is dictated by
detailed regulation. In addition, it should address the ways in which the plan sponsor will

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educate participants on the more specialized investment options available in the plan, such as
target date funds and brokerage windows.
2. Key investment concepts
While the § 404(a) regulation is very specific in its description of required investment
option disclosures, a plan sponsor must also provide education that covers key investment
concepts that promote financial literacy so that participants will be able to make reasonably
informed choices in structuring their investment options within the plan. In providing this
component of participant education, the plan sponsor must take into account the regulations’
standard of communication that requires all information to be presented in a manner calculated to
be understood by the average participant. Communicating relatively sophisticated investment
principles can be especially challenging for a plan sponsor whose participants have relatively low
levels of education generally.
Investment concepts that plan sponsors should consider addressing in their education
policy statement include the risk/return equation related to various classes of investments, the
nature of mutual funds as collections of many individual investment instruments that help reduce
investment risk, the role of benchmarks for various classes of investments, and the balance
between a participant’s risk tolerance and accumulating enough assets to support a satisfactory
income in retirement given the participant’s time horizon.
3. Asset allocation
Once participants are adequately informed about the investment options available to them
and have an understanding of fundamental investment concepts, they should be in a god position
to responsibly manage their retirement assets. The plan sponsor can assist in this process in a
number of ways. The level of support can vary greatly with the most common line of
demarcation being the difference between investment education and investment advice. This
dividing line is significant for plan sponsors because regulations under ERISA say that crossing
the line between education and advice can give rise to additional fiduciary duties. Merely
providing “educational” resources to plan participants will not implicate fiduciary exposure.
Regulations outline four broad areas that constitute investment “education”: (1) information
about the terms of the plan, (2) general financial and investment concepts, (3) asset allocation
models, and (4) worksheets or interactive software that assesses the impact of different assets
allocations on expected retirement income.
Plan sponsors or advisors who venture beyond these categories into individualized
investment recommendations will become plan fiduciaries. Such advice can take the form of
non-discretionary advice where the participant retains full control over final investment decisions
(an ERISA “§ 3(21) advisor”), and discretionary advice where the advisor assumes full
responsibility for managing investments in a participant’s account (an ERISA “§ 3(38) advisor”).
Plan sponsors can determine the extent to which they want to go beyond education and
into advice, if at all. Because of the added fiduciary exposure of advice, however, any such

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decision should be an intentional one. Incorporating the level of education/advice available to
participants should be clearly established in the plan’s education policy statement.
4. Retirement goals
An education policy statement should address how the plan sponsor will help participants
understand the overall purpose of the plan—to provide participants a secure retirement.
Concepts that should be covered include the impact of the timing of retirement on assets
available during retirement, determining living costs before retirement and estimating the
percentage of those costs that the participant will need during retirement, establishing lifestyle
goals during retirement, the need to preserve capital during retirement, the rate of withdrawal
from retirement assets during retirement.
c. Implementation
In addition to establishing substantive goals for participant education, an education policy
statement should also address how the educational program will be implemented. In conjunction
with the initial assessment process of an employer’s participant workforce, the plan sponsor can
determine how frequently to offer formal educational meetings, determine the optimum setting
for such meetings, establish whether to present education modules differently to different
components of the workforce. All components should be geared toward the development of
strategies to maximize participant interest and participation so that the plan sponsor’s retirement
plan can serve its essential purpose of providing its employees with a secure retirement.
d. Evaluation and modification
To the extent an education policy statement establishes goals for the results of the plan’s
educational program in areas such as participation, deferral rate, account balance and asset
allocation, those goals should be concrete enough so that they can be measured, and adjusted if
necessary, from year to year. In so doing, a plan sponsor can accurately measure progress and
maintain flexibility in discharging its education function.
The plan sponsor should also assess the effectiveness of how its education program is
presented to participants. By carefully observing annually the extent to which goals stated in the
education policy statement have been met, the plan sponsor can use this experience to make
adjustments in both content and presentation that are calculated to achieve greater success in
meeting the goals of the education program.
An effective tool for aiding in the evaluation and modification of the education process is
QPSteno. The tool can be used to track trends in participant behavior. As it has the ability to
track participant interactions with all service providers, this tool provides a more complete and
less biased view of participant needs than can be found using self-reporting questionnaires. The
tool can enhance the efficiency of the service providers by illustrating how the participants are
engaging the plan currently and what subjects are most frequently sought during their

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interactions. This information can be invaluable for a responsible plan fiduciary to better evaluate
the educational needs of the participants and to efficiently commit resources to filling those
needs.
V. CONCLUSION
An effective retirement plan is one of the best benefits an employer can offer its
employees. It can help the employer recruit and retain a competitive workforce, and establish an
environment that promotes employee satisfaction and productivity. An intentional policy of
creating and implementing an effective educational program regarding the plan through an
education policy statement benefits both employees in helping them secure a comfortable
retirement, and employers as an aid to meeting their fiduciary duties to plan participants in a
highly complex regulatory environment.