Wondering why your communication isn’t more effective in helping workers make better financial decisions? Or what you can do differently to encourage employees to improve their retirement security?
This National Employee Benefits Day—celebrated on April 2, 2018—we are encouraging plan sponsors to take a look at how the theories of behavioral decision making can positively influence their participants.
If you visit www.ifebp.org/benefitsday you’ll find lots of resources including a list of tips you can put into place at your organization. To get you started, here are four quick tips to help your employees save more for retirement:
Stress What Could Be Lost—Not What Could Be Gained
People are highly motivated to avoid loss. In fact, losing hurts worse than gaining feels good. Take a look at your retirement plan communication and see if a little wordsmithing can help nudge your participants toward positive actions. For example:
Use: Do you want to leave a 5% pay increase on the table? Take advantage of your retirement plan match. (Loss frame)
Instead of: Would you like a 5% pay increase? Take advantage of your retirement plan match. (Gain frame)
[Related: Free Webcast on April 2, 2018: Small Tweaks, Big Impact: The Power of Behavioral Decision-Making for the Plan Sponsor]
Point Out What Others Are Doing Right
When making choices, people tend to follow the crowd because they believe there is less chance they will make the wrong choice. That’s why if Eric from IT tells his buddy Matt in accounting, “You aren’t participating in our 401(k)? You’re missing out on free money!” Matt is much more likely to enroll then if he gets a carefully worded e-mail from HR touting the benefits of participation.
So what can you do? Establish social norms by pointing out what other employees are doing right. Consider messages like: “90% of ABC employees contributed to their retirement plans last year” or “Nine out of ten new hires say yes to saving 15% of their pay for retirement.”
Use Opt-Out Versus Opt-In Features
Failing to take action (inertia) and putting off doing something (procrastination) are reasons many people fail to enroll in a retirement plan or increase the amount they are saving. To help combat this, consider autoenrollment and autoescalation features in a DC retirement plan. That way you can use the previously unhelpful inertia and procrastination in your favor—and in your plan participants favor!
Use a Stretch Match
People tend to follow an employer’s message, even if it isn’t in their best interests to do so. For example, consider employers that autoenroll employees into a company retirement plan offering a 100% match on amounts up to 3% of employees’ pay. Those who stick with their employer’s “endorsement” will have a total savings equal to 6% of their pay—an amount unlikely to achieve their retirement goals. Take advantage of the endorsement effect by using a stretch match. Offer 50% match on amounts up to 6% of earnings, which yields total savings of 9%, or offer a 50% match on amounts up to 10% of earnings to encourage a total savings of 15%.
Find more helpful tips for using behavioral decision making here. And don’t forget to register for the FREE Employee Benefits Day webcast Small Tweaks, Big Impact: The Power of Behavioral Decision-Making for the Plan Sponsor to be presented on April 2, 2018.
Brenda Hofmann
Senior Communications Associate at the International Foundation
