As a plan sponsor, you offer a variety of benefits to help your employees stay physically and financially well, but like the old saying goes: “You can lead a horse to water, but you can’t make him drink.” That’s right—Despite your best intentions, it can be challenging to get your workers to take action on your financial literacy or health education programs.
Recently a field called behavioral economics has gained attention, and earlier this year the International Foundation hosted a summit to explore how the theories of behavioral economics could be used to help plan participants make more informed decisions about their health and retirement benefits.
At the summit, five key challenges facing plan sponsors emerged with suggestions of how behavioral economics interventions could positively influence plan participants.
Challenge 1: Convince younger workers to save for retirement.
To help overcome inertia and establish new social norms, plan sponsors can take action by:
- Implementing automatic enrollment in your savings plan
- Selecting a default rate that results in meaningful contributions, such as 6% of pay
- Deploying a precommitment strategy with automatic escalation of contributions.
Challenge 2: Help plan participants determine how much to save.
Don’t just send a link for an online calculator. Improve savings plan contribution rates by:
- Showing a recommended savings rate on election forms
- For nonparticipants, projecting estimated employer matching contributions and future balances and stating the amounts that will be lost due to nonparticipation
- Simplifying the investment lineup with a default investment option and a small initial lineup of funds—for example, five to seven funds.
On-Demand Webcast: Small Tweaks, Big Impact: The Power of Behavioral Decision-Making for the Plan Sponsor
Challenge 3: Help older workers decide when to retire.
Workers nearing retirement face some very important decisions. Employers can help by:
- Looking for alternative career paths and other ways to accommodate older workers to postpone retirement, even just for a year or two
- Considering implementing retirement readiness programs that motivate older workers to learn about their options and then providing the tools to help them consider the financial consequences of retiring at various ages
- Allowing retirees to share stories of steps they are glad they took, as well as their regrets.
Challenge 4: Help participants become better consumers of health care.
Health care jargon can be confusing to workers. Make it easier to understand by:
- Helping participants and HR practitioners understand the financial consequences of choosing between low- and high-deductible plans, taking into consideration both the differences in premiums and deductibles
- Framing financial incentives in health care plans as a loss if participants don’t participate
- Looking for ways to encourage more efficient consumption of care by encouraging clinicians to recommend preventive care and judicious prescriptions of lab tests.
Free Resource: Behavioral Decision Making A-Z Quick Guide
Challenge 5: Help participants adhere to medical treatments.
People can be overly optimistic about their goals to improve their health. Employers can help by:
- Removing any barriers to small behaviors that can cascade into significant health improvements
- Looking for ways to motivate employees and participants who aren’t participating in wellness programs. Examples include instant incentives, lotteries, loss aversion and virtual reality.
- Focusing on building healthy behaviors and habits (for example, regular exercise) instead of results (such as losing weight).
Want to Learn More?
You can find many more tips in the whitepaper from the summit Beyond Defaults: Using Behavioral Economics and Psychological Science to Improve Retirement and Health Outcomes authored by Steve Vernon, FSA, research scholar at the Stanford Center on Longevity. Mr. Vernon facilitated the discussion at the summit, which featured behavioral economics researchers Kristen Berman of the Common Cents Lab and Justin Sydnor, Ph.D., from the University of Wisconsin.
Brenda Hofmann
Communications Manager at the International Foundation
Related Reading:
- Nudging Employees to Good Health Through Behavioral Economics
- What If “Early Retirement” Was Called “Reduced Retirement”?
- Employees Aren’t Saving. What’s a Plan Sponsor to Do?
- 4 Tips to Increase Your Employees’ Retirement Security
