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Is fear or encouragement a bigger motivator for defined contribution plan participants? That is a question the Defined Contribution Institutional Investment Association set out to answer in its latest study.
DCIIA said many benchmarks can define success for a DC plan, from basic participation to deferral rates to more elaborate retirement readiness and financial wellness measures. However, perhaps a more important measure of success is how effective the plan is at driving engagement and compelling participants to prepare for retirement, according to DCIIA's report "Engaging Participants: Communication Strategies for Defined Contribution Plan Sponsors."
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Helping participants help themselves toward retirement readiness requires participation, and plan sponsors have a choice about how they address participants to encourage that participation, said the report. DCIIA said its research found that contrary to popular opinion, communication does work to increase engagement in the plan and prompt action from participants.
But how messages are constructed can have differing impacts on plan participation and activity. The survey posed questions to more than 1,000 respondents that established current engagement followed by an intervention. One group was offered an encouraging message citing the participant's progress toward funding retirement that read, "Great news! We project you're on track to reach 71% of your retirement income goal. Although you are not at 100% just yet, a few changes can help you reach this goal."
A second group was offered a message warning of a retirement savings shortfall that read: "Caution! We project you're going to have a 29% shortfall when it comes to achieving your retirement income goal. You will have to make a few changes in order to get to 100%."
Respondents were then asked another set of questions evaluating their likelihood to increase engagement based on the message they received.
The report found that both messaging approaches improved engagement, suggesting that any type of communication that delivers a retirement income statistic to participants is likely to be effective. It also found that between fear and encouragement, fear led to greater post engagement, an effect that the firm said was surprisingly robust and persisted even when controlling for demographics.
However, the report cautioned that plan sponsors may only want to use cautionary language selectively. When tailoring messaging, plan sponsors should have a thorough knowledge of the participant base and rely on recordkeeper resources to evaluate their communication strategies, said the report.
DCIIA noted the survey only studied intent to take action and not whether actual action was taken if any. It said it anticipates conducting future research to study the issue further.
Kristen Beckman is a freelance writer based in Colorado. She previously was a writer and editor for ALM's Retirement Advisor magazine and LifeHealthPro online channel. She also was a reporter for Business Insurance magazine covering workers compensation topics. Kristen graduated from the University of Missouri with a degree in journalism.
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