Despite the best efforts of defined contribution (DC) retirement plan sponsors, many employees still find the plans themselves confusing – and that can prevent participants from making prudent choices, or making decisions at all. This isn’t a new trend. DC plan sponsors, such as those who offer 401(k), 403(b) or 457 plans, have historically struggled to effectively communicate the benefits of plan participation in ways that might boost engagement and enrollment. Can plan communications be improved? Plan participants might become more engaged if you speak their language – after all, most participants are not investment professionals. Here are some ideas Capital Group® suggests to help paint a clearer picture of your plan’s benefits, which in turn should encourage participants to adopt better savings behavior.
Be certain plan information is clear: Keep an eye out for vague or unclear terms in plan communications. In short, never assume a participant will understand plan or investment jargon. Even the plan name itself can be confusing, says Toni Brown, CFA, senior retirement strategist at Capital Group.
401(k) plans debuted in 1978 to provide “supplemental savings” to traditional pensions, but defined contribution plans are now the only retirement plan offered by many plan sponsors. Surprisingly, there are still some sponsors that call their plans “supplemental” or “savings” plans. To reduce confusion, sponsors should clearly label and refer to their plan as what it is: a retirement savings plan.
Make the match sound meaningful: The primary reason employees decided to participate in a retirement plan was because the employer offered a match, according to a 2017 Deloitte survey.1 The same survey found that the top reason employees didn’t participate was due to a lack of awareness or understanding of the plan. Want to make employees aware of the match and inspire them to join the plan? Dub the match “free money” or a “free employer contribution.” In general, people are less likely to turn down a “free” offer, Brown says.
The messenger matters, too: Who delivers the message can be as important as the message itself. Employees may feel that a message coming from a company’s HR or another internal group may be more credible or relevant than one coming from a recordkeeper.
Brown recounts the example of an HR department executive at a large tech firm who decided to send personalized emails to each of the members of the workforce, noting exactly how much money the individual could get in terms of a company match if they increased their own contribution. There was an easy link to click for each person to easily access the company match information. One of the keys to that email’s success was that it originated from HR, not an external source, Brown adds.
Face-to-face is powerful: Messages are most impactful when delivered personally, so provide plan communications to participants in face-to-face settings whenever possible. Participants are open to receive factual information – such as account balances or investment performance – via print or online. But, when they need to make a decision, their preference is for in-person communication, according to a 2019 Cammack Retirement Group survey.2 Cammack emphasized that decision-based materials should be delivered by individuals who can help participants and respond directly to their questions.
Bring in financial planners: Employer financial wellness programs can also include services from independent financial planners who don’t sell financial products. Employees tend to prefer such professionals as their trusted source for financial education and guidance, according to multiple surveys.3 Financial planners can include in their guidance an explanation of the value of gradually stepping up a participant’s plan contributions. Research by Richard Thaler, recipient of the Nobel Prize in Economics, and Shlomo Benartzi, a behavioral economist at UCLA Anderson School of Management, showed that when a financial planner suggested during face-to-face interviews that participants use automatic escalation to annually increase their contributions, savings rates jumped from an average of 3.5% to 13.6% four years later.4
Go modular: The workforce naturally includes people of diverse ages, life stages, and perceptions regarding saving for retirement. A recent college grad won’t have the same financial goals as a co-worker nearing retirement, and parents will have different planning criteria than employees without children. Sponsors should take this diversity into account and shift toward “modular communication and education,” suggests the Defined Contribution Institutional Investment Association.5 In doing so, sponsors present small chunks of information to address what’s meaningful to a participant at their specific life and career stage. By combining modularization with messages timed around a worker’s life events – think work anniversaries, birthdays, marriage, or nearing retirement – sponsors might be better positioned to help participants think more about retirement planning.
Improving retirement communications will likely require significant effort and time. Sponsors should realize that reaching their goal of maximum engagement will be a game of inches, not yards. But when the right messenger conveys an unmistakably clear message at a key time in an employee’s career, sponsors can help nudge their participants toward pursuing a financially secure retirement.
1 Deloitte LLP, “Defined Contribution Benchmarking Survey: From Oversight to Participant Experience: Plan Sponsors Are Taking Their Fiduciary Role Up a Notch,” 2017.
2 Cammack Retirement Group, “Effectively Communicating Your Retirement Plan Message,” 2019.
3 Sources: PricewaterhouseCoopers LLP, “Special Report: Financial stress and the bottom line: Why employee financial wellness matters to your organization,” September 2017; Bank of America Corp., “2018 Workplace Benefits Report: A look at how employers and employees think about the path towards financial wellness,” 2019.
4 Wall Street Journal, “The Secret to Getting Workers to Save More for Retirement,” December 10, 2017, https://www.wsj.com/articles/the-secret-to-getting-workers-to-save-more-for-retirement-1512961920.
5 Defined Contribution Institutional Investment Association, “Rethinking Defined Contribution Communication and Education,” December 2013.
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