Education Policy Statements – Fiduciary Fashion or Folly? By: Diana PowellESQ. 2013.10.30

"An investment in knowledge pays the best interest." - Benjamin Franklin

There is a current debate brewing within the financial community regarding the value of Education Policy Statements (EPS).  Some pundits are heralding these as the “next best things” for your retirement plan.  While others warn that including an Education Policy Statement within your plan will create additional “liability if they fail to properly maintain the document.” (Carosa)

As with an Investment Policy Statement (IPS), which is a “written document that outlines important issues such as goals, policies, and procedures” and is considered a best practice, an Education Policy Statement is a document which “helps clients develop an education process while providing benefits to all parties involved with ongoing education to plan participants.” (DiBruno)  However, instead of burdening their plans with a document establishing potential legal liability, experts argue that an Annual Education Program (AEP) should be implemented.

An Annual Education Program offers flexibility and less liability than an EPS.  As opposed to an EPS, which becomes a permanent part of the plan, an AEP document “generally contains written objectives, plan of execution and monitoring criteria for a single year.” (Carosa)  An Annual Education Program expires within a year, but an Education Policy Statement is officially adopted by the Committee and becomes part of the governance documents, thereby creating the potential liability to the plan in perpetuity.

Besides the potential legal liability, the other argument against Education Policy Statements is the debate regarding the value of financial education.  Experts reason that there is already millions of dollars on financial education being used ineffectively, comparing the current practice of teaching financial education in retirement plans as being as effective as “teaching high school seniors algebra in a one-hour course annually – with attendance optional. Yet failing the test has much more dire consequences.” (Barstein, Cormier, Benartzi)  This seems to point to waiting to fix the way we approach financial education in retirement plans before we codify it within a document such as an Education Policy Statement.

Whichever way this debate resolves itself, it is doubtful that Education Policy Statements will become mandatory any time in the near future.  What is certain is that the retirement industry needs to find a way to make participants better educated savers.  Increasing plan participation and improving communication and education should be a priority for plan sponsors.
Diana K. Powell

Diana K. Powell, Esq. joined Westminster Consulting in September 2012 as Senior Legal Advisor. Previously she was a sole practitioner who advised educational organizations, government bodies and private corporations. Diana was responsible for negotiating agreements for high-tech software corporations...

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