The retirement planning industry has evolved significantly since the birth of the 401(k) plan. With the Pension Protection Act of 2006, doors opened for innovations in plan design including automatic plan features. In recent years, employers have increasingly adopted automatic features—including automatic enrollment, escalation and default investments—as a way to enhance retirement outcomes for plan participants.
And, plans that have been using automatic enrollment for eight years or longer see dramatic lifts in participation—90 percent compared with the industry average of 75 percent. Among plans that use automatic escalation, deferral rates are more than twice the industry norm at 8 percent versus 4 percent.
Put simply: Automation works. Yet despite these impressive results, less than half of all plan sponsors have adopted auto escalation and enrollment to date, according to the Plan Sponsor Council of America.
Historically, the low adoption of automatic features may have been driven by several factors, including plan sponsor concerns with employee reaction and employee concerns with lack of control. But a new shift from the fundamentals of plan design to the way plan features are communicated to participants may improve opportunities brokers have with existing and prospective plans—and, ultimately, help plan sponsors increase plan participation.
While new retirement communication channels have emerged since the introduction of auto features, they haven’t evolved in tandem with advances in plan designs. In fact, only 51 percent of plan sponsors say they offer customized communication, and only half have revamped communication materials since the introduction of auto features.
There’s a disconnect between plan design innovations and the communication programs that support them. Retirement communication needs to shift emphasis from the plan mechanics to focusing on personal and real connections to participants’ retirement goals.
The move away from process-focused messages, such as how to enroll, plan mechanics and investment selection, to conversations around the projected outcomes of a participant’s savings behaviors and strategies, including future monthly retirement income, spending power and retirement lifestyle, will not happen overnight.
Changing the conversation requires tradeoffs in terms of time and energy, but the pay-off will be great. The change will foster retirement readiness with advantages over today’s communication model—a more appropriate, personal and motivational message delivered to retirement plan participants.
Rethinking retirement plan communication
It’s important to realize that for automatic solutions to be effective and successful, plan participants should do more than just “set it and forget it.” A successful retirement communications program requires more two-way communication along with strategies that help participants envision what retirement will really look like for them personally. Here are five retirement communication tips for employers to consider when implementing automatic plan features:
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1) Identify participant saving stories.
This idea is the essence of an outcomes-focused communications plan. New communications should follow the saving story all the way to the end, addressing potential future buying power. A plan should encourage participants to think about retirement in terms they can relate to and provide examples, including profiles and success stories, to help participants gain a realistic view of their progress. This means taking the retirement plan conversation away from just how plans work to engaging participants in discussions about their personal savings behaviors and strategies.
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2) Reinforce positive behaviors.
Outcomes-focused communication themes are naturally more optimistic and action-oriented and can inspire people to save. Messages should focus on “What’s in it for me?” Appealing to participants in a positive way and reinforcing successful behaviors increases their overall engagement and interest in the retirement benefit. These behaviors can include getting advice from a financial professional, staying invested, increasing contributions over time and making extra contributions in years when possible. Helping participants maintain a positive outlook and focus on the end goal, even when account balances are hit by fluctuations in the market, can help them stay on track and understand the benefits and value of automatic features.
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3) Offer one-on-one retirement communications programs.
While plan sponsors are seeking ways to support more self-directed learning, participants continue to value one-on-one meetings with professionals. In a recent study, when participants were asked to rate the value of various meeting formats, more than 71 percent said they favored one-on-one meetings. Evaluate the ability to make one-on-one meetings available at varying times throughout the workday. If an alternative is necessary, consider breakfast or lunch meetings, as opposed to after-hours meetings.
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4) Encourage regular retirement check-ups.
Just like an annual physical, it’s important for participants to meet with their retirement consultant or financial advisor on a regular basis to assess the status of their 401(k) plan or retirement savings plan. Likewise, plan sponsors should evaluate retirement plan communication strategies annually, at a minimum. Include decision makers such as the investment committee, human resources professionals, benefits managers, communicators and others to help evaluate the message needs. Leverage employee engagement survey results and all available employee attitude data to ensure that your retirement communications are in sync with overarching messages and are tied to topics and issues that employees care about most.
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5) Unleash the power of all available communications channels.
With mobile technologies and web-based retirement education, participants have access to content all day every day. When web-based platforms are part of a retirement communication program, content needs to be updated and relevant to keep pace with round-the-clock news cycles. Balance freshness and relevance of content with personalized information in every channel.
Bridging the gap between retirement plan design and communication won’t happen overnight. However, when you do it effectively, it can dramatically change the landscape for retirement savers and employers in the long term. The combination of outcomes-focused plan design supported by outcomes-focused communication has the power to make retirement planning and saving more meaningful and tangible and, in turn, is one of the most powerful ways to help boost their retirement readiness.
Chuck Cornelio is president of retirement plan services at Lincoln Financial Group.