5 things retirement plan sponsors can do to help employees

1. Take away obstacles.

Make sure there are plenty of defaults during initial signup, including for contribution rates and escalation rates.
Even default beneficiaries can make it easier for workers to complete the process. (The report points out that “spouse, children, parents, estate” can be appropriate for many participants, thus removing an obstacle that might keep them from signing up. And it can be changed if it’s not appropriate for a particular participant.)
In addition, if such options are available with your plan, allow employees to manage their participation via an app. Making it as easy as a one-click purchase online will help to keep them in the plan, and may even encourage more active participation.

5. Offer “just enough” choices.

People confronted with too many offerings tend to just walk away, since they can’t make up their minds about what they actually want.
Providing too many investment choices—particularly to people with a low confidence level in choosing investments—can make them just take whatever the default option is.
This could actually be a good thing, provided the default option is something appropriate. But even a default option isn’t the best choice for everyone.
In addition, once they make their choice, people often fail to change it, even if their risk tolerance or circumstances change.

(All photos: Shutterstock)

4. Offer professional advice as part of the plan.

This can be a great solution for plan participants who have no idea how much they need to save or how much they’ll need to live on once they hit that golden age.
Providing professional guidance as part of a retirement plan can help to avoid the problems of participants choosing inappropriate investments, failing to increase their contributions once they’ve entered the plan or failing to have a goal in mind.

3. Use auto-enrollment.

If people don’t even have to sign up but do have to take action to opt out, the odds are much better that they’ll take the path of least resistance and remain in the plan.
According to a report on The Trust, use of auto-enrollment has already risen substantially from 2000, when it was just 8 percent, to its present level of about 73 percent.
In addition, Vanguard numbers on plans for which it does recordkeeping indicate that those with automatic enrollment have an overall participation rate of 90 percent, compared with just 63 percent for plans with voluntary enrollment.

2. Use auto-escalation.

If the plan automatically increases employee contributions, the “set it and forget it” crowd won’t be as far behind as they would be without such a provision.
True, some people never change either asset allocations or contribution rates the entire time they participate in a plan, and they can come out far short of their goals that way.
But a sizeable initial contribution level, followed with an increase each year that’s more than a single percent, can help them catch up without ever realizing they’re doing so.
The report points out that the generally recommended overall deferral rate is 12–15 percent, but most participants only save a median of 5 percent.

1. Take away obstacles.

Make sure there are plenty of defaults during initial signup, including for contribution rates and escalation rates.
Even default beneficiaries can make it easier for workers to complete the process. (The report points out that “spouse, children, parents, estate” can be appropriate for many participants, thus removing an obstacle that might keep them from signing up. And it can be changed if it’s not appropriate for a particular participant.)
In addition, if such options are available with your plan, allow employees to manage their participation via an app. Making it as easy as a one-click purchase online will help to keep them in the plan, and may even encourage more active participation.

5. Offer “just enough” choices.

People confronted with too many offerings tend to just walk away, since they can’t make up their minds about what they actually want.
Providing too many investment choices—particularly to people with a low confidence level in choosing investments—can make them just take whatever the default option is.
This could actually be a good thing, provided the default option is something appropriate. But even a default option isn’t the best choice for everyone.
In addition, once they make their choice, people often fail to change it, even if their risk tolerance or circumstances change.

(All photos: Shutterstock)

4. Offer professional advice as part of the plan.

This can be a great solution for plan participants who have no idea how much they need to save or how much they’ll need to live on once they hit that golden age.
Providing professional guidance as part of a retirement plan can help to avoid the problems of participants choosing inappropriate investments, failing to increase their contributions once they’ve entered the plan or failing to have a goal in mind.

3. Use auto-enrollment.

If people don’t even have to sign up but do have to take action to opt out, the odds are much better that they’ll take the path of least resistance and remain in the plan.
According to a report on The Trust, use of auto-enrollment has already risen substantially from 2000, when it was just 8 percent, to its present level of about 73 percent.
In addition, Vanguard numbers on plans for which it does recordkeeping indicate that those with automatic enrollment have an overall participation rate of 90 percent, compared with just 63 percent for plans with voluntary enrollment.

2. Use auto-escalation.

If the plan automatically increases employee contributions, the “set it and forget it” crowd won’t be as far behind as they would be without such a provision.
True, some people never change either asset allocations or contribution rates the entire time they participate in a plan, and they can come out far short of their goals that way.
But a sizeable initial contribution level, followed with an increase each year that’s more than a single percent, can help them catch up without ever realizing they’re doing so.
The report points out that the generally recommended overall deferral rate is 12–15 percent, but most participants only save a median of 5 percent.

1. Take away obstacles.

Make sure there are plenty of defaults during initial signup, including for contribution rates and escalation rates.
Even default beneficiaries can make it easier for workers to complete the process. (The report points out that “spouse, children, parents, estate” can be appropriate for many participants, thus removing an obstacle that might keep them from signing up. And it can be changed if it’s not appropriate for a particular participant.)
In addition, if such options are available with your plan, allow employees to manage their participation via an app. Making it as easy as a one-click purchase online will help to keep them in the plan, and may even encourage more active participation.

What can plan sponsors do when adding or revamping a retirement plan that could make that plan more effective? Some tactics don't work well, although at first look they appear to be slam-dunks: Explaining things in detail for employees: great. Overloading them with documentation: Not so great. Many of them don't bother to read it anyway. Remember that people are loss-averse, so if you frame your materials to reflect how much they'll gain by saving, or how much they'll lose out on if they don't, it will be more influential. Point out, for instance, that they'll gain 6 percent (or however much the employer match is) by contributing enough to qualify—or let them know that if they fail to contribute enough to qualify, they'll "lose" that 6 percent. Remind them of things like the tax reduction they'll experience by contributing—point out how much of a gain that is when compared to failing to contribute. In addition to such tactics, however, there are specific actions you can take when implementing or changing a plan that will gain better results for you and for them. Here are five suggestions.

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