A decade ago, the 2006 Pension Protection Act recognized theimportant behavioral finance concept of the “nudge”—the reframingof the decision-making process to subtly push the decision makertoward the optimal decision. We see this in the shift fromopting-in to opting-out in modern 401(k) plan design. No longerlimited to just the leading-edge, more plan sponsors have embracedthis approach.

Auto-enrollment, auto-reenrollment, auto-escalation, and defaultinvestment options represent the first tip from the treasure chestof early behavioral finance research and have proven effective inincreasing retirement savings rates. But you already know this.What you might not know are the four other 401(k) plan tips recentresearch has uncovered.

The second tip involves the concept known as “intertemporalchoice.” Research says people tend to make better decisions if theimplementation of that decision doesn't immediately occur. Onestudy found a 32 percent improvement in decision making by movingthe delay from one to two months. Many plans require a worker toaccrue a minimum number of hours before being allowed to join.Rather than wait until an employee is eligible to ask them to startsaving, why not ask them to make a decision on both their initialsalary deferral as well as their annual escalation as part of theirfirst day introduction to the firm? Actual participation in theplan may be months or longer away, but they are more likely to makethe correct choice if asked to decide today.