Economic Inquiry

What motivates employees to participate in and contribute to voluntary savings plans? According to a new study in Economic Inquiry, the answer lies in how regularly their company holds retirement seminars.

Direct links where found to exist between how often a retirement seminar is offered and increased levels of 401(k) activity—especially among those employees lower down on the pay scale. Participation rates by non-highly compensated employees are 11.5 percent higher with plans that offer frequent seminars, than those with no seminars. For highly compensated employees, participation is 6.5 percent higher when seminars are more regularly available. In firms where participation is historically low, the number of employer-sponsored seminars spiked—a strong indication that retirement seminars are remedial.

"The Effects of Financial Education in the Workplace: Evidence from a Survey of Employers" taps a previously unexploited source — the KPMG Peat Marwick Retirement Benefit Survey — to conduct a detailed investigation into employer-based retirement training programs.

In the KPMG survey 1,100 public and private employers were chosen randomly and interviewed both in 1993 and again the following year. Using variables such as firm characteristics, retirement plan characteristics, and 401(k) plan characteristics, the authors evaluate the relationship between education and behavior.

Employers don't offer retirement education solely for altruistic reasons. In addition to helping employees prepare for retirement, these seminars introduce workers to the value of the company's existing pension plan and help stave off subsequent demands on employers for more generous plans.

"Assistance with financial planning may also enhance employee loyalty, improve labor relations, and boost morale," the authors contend. So for many reasons, when it comes to honing financial-decision making skills, the more education offered, the better.