Opinions May 17, 2021

Boosting Participant Engagement in DC Plans

Karen Witham, with DCIIA, discusses how effective communication strategies can help improve DC plan participant engagement.

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Plan design enhancements, such as the implementation of automatic enrollment and automatic escalation features, have gone a long way toward improving participation in defined contribution (DC) plans. But plan sponsors may find themselves surprised by the lack of reaction from participants when they implement much-discussed changes such as the addition of auto-features, streamlining menus and other best practices.

While this lack of engagement can prove beneficial when plan sponsors are seeking to evolve and overcome participant inertia to better ensure optimal retirement outcomes, it can also prove disheartening when they’re trying to get participants more actively involved with planning and saving for retirement through their DC plan. Plan sponsors can boost participant engagement by using effective communication strategies.

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  1. Communicate and contextualize: When sharing information with participants, use clear, concise communications that also provide context. Don’t assume that they will “fill in the blanks” and draw conclusions as to what they need to do and how it could benefit them—provide specific, actionable information. Where possible, contextualize the information in light of their other benefits, their overall budget and financial wellness profile. Spell out the “What?” “When?” and “Why?” of the information you’re sharing.

  2. Tailor your messaging: People are now used to customized experiences—on-demand streaming and “you might like this” preferences served up everywhere from Amazon to YouTube, and more. Where possible, provide unique messages to different demographic segments within your participant population. Supply easy ways to click through to more information, such as retirement calculators and other tools, as well as their unique DC plan information. If possible, track those clicks for metrics that might shed light on the success rate of the communication. (For a deeper dive, see “Successful Plan Communications for Various Population Segments” by the ERISA Advisory Council.)

  3. Leverage technology: Take a fresh look at the latest tools available to support participant engagement and communication. There’s more out there than just email and a website. Can you create an explainer video? Does your recordkeeper have technology you can leverage? Is text-based messaging a possibility? Can you use gamification, artificial intelligence (AI), or other innovations to be more effective and capture the attention of your younger participants?

  4. Plain English, please—and perhaps some translations, too: It’s not breaking news that most employees are not investment savvy, and communicators have long argued for “plain English” information about benefits and retirement plans—and yet if you reviewed recent examples of participant communications, more than a few would still be riddled with investment jargon, complicated charts and generally dense, visually unappealing content. Take a good look at what information your participants are receiving about their plan and consider whether the average employee will really understand it—or even want to attempt to try. Given your employee demographics, you may want to consider offering information in multiple languages, as well. (This tip and many other best practices are discussed in DCIIA’s white paper, “Rethinking Defined Contribution Communication and Education.” In a forthcoming paper, DCIIA member contributors will share insights on bolstering participant engagement and best practices in communication when rolling out a retirement tier/retirement income solution.)

  5. Consider partnering with employee/business resource groups: Collaborating with employee affinity groups might help to boost engagement. They could, for example, review and provide feedback on your participant communication materials or create spaces for candid conversations where employees might feel more able to share questions and concerns and learn from each other. Peer-based discussion and accountability can be a strong motivator for positive behavior when it comes to finances and savings.

  6. Be inspired by social media and leverage internal communications pros: Can you recruit internal “influencers” who might amplify important messages about retirement savings and your DC plan? Do you have an internal discussion platform where you might encourage employees to share their thoughts, updates and questions on the plan in an open forum? Can you partner with your internal communications team on a targeted campaign, perhaps creating hashtags, providing images employees can share and offering prizes for participating in the campaign?

In his “Behavioral Bites” blog, DCIIA Retirement Research Center Director Warren Cormier notes, “We hear a great deal about fostering engagement among participants when it comes to retirement savings. However, with today’s prevalence of automated features, does engagement still matter? The answer is ‘yes!’ In our models, we have found that people who are highly engaged in activities surrounding their retirement account have much higher deferral rates and are much more likely to trust and heed the communications messages from their recordkeeper and employer. Perhaps most importantly, engagement drives what we call ‘financial courage’—the strength to stick to their retirement journey regardless of what happens to the market or to their personal situation. Essentially, engagement creates a much higher probability of retirement readiness.”

Karen Witham is vice president, communications and marketing, at the Defined Contribution Institutional Investment Association (DCIIA). 

This feature is to provide general information only, does not constitute legal or tax advice, and cannot be used or substituted for legal or tax advice. Any opinions of the author do not necessarily reflect the stance of Institutional Shareholder Services or its affiliates.
Reader Responses May 17, 2021

SURVEY SAYS: Do You Have a Pension Plan?

PLANSPONSOR NewsDash readers report whether they participate in a defined benefit (DB) pension plan and whether they believe all employees should be offered one.

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Last week, I asked NewsDash readers, “Do you have a defined benefit (DB) pension plan from a former or your current employer?” I also asked: “Do you believe all employees should be offered a pension plan?”

Nearly half (46%) of responding readers work in a plan sponsor role. More than one-quarter are recordkeepers/TPAs/investment consultants, 19% are advisers/consultants, 5% are attorneys and 3% are CPAs.

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More than six in 10 respondents reported that they have a defined benefit (DB) pension plan from a former or their current employer? More than half (54%) indicated they believe all employees should be offered a pension plan. However, nearly one-third (32%) said they did not believe all employees should be offered a pension plan, and 14% said they don’t know.

The majority of the readers who chose to leave comments agree that a pension plan offers a more secure retirement for participants. However, several point out the regulatory and cost factors that prohibit employers from offering one or make employers want to stop offering one. There were quite a few readers in support of DC plans, though, and several remarked that participants have to do more to save in DC plans while others noted that some participants can’t. Editor’s Choice goes to the reader who said: “Sometimes the cost of maintaining such a plan is so much higher that it is just easier to offer a DC plan. At least, they are offering something. I would rather that they offer a DC plan than no plan at all.”

A big thank you to all who participated in the survey!

Verbatim

While I do have a pension plan with my current employer, they are freezing it as of the end of next year, replacing it with a cash balance formula.

There is no doubt that a DB plan combined with additional savings (401(k)) provides more security for workers. When I look at what we (my wife and I) have saved, if we also had a DB plan (neither of us do), we would likely consider retiring several years earlier than planned. The old three-legged stool of DB, SS and personal savings is, in my opinion, the most secure option.

I think it provides better retirement stability.

While it would be wonderful for all employees to have a pension plan, I realize it is not economically practical. It would put many businesses out of business.

Through defined contribution plans, we’ve allowed participants to potentially accumulate a lot of assets. Then, we leave them on their own to manage those assets in retirement. How do they make sure they’ll have lifetime income? A defined benefit plan takes that worry away from the participants.

This comes down to individual responsibility. DB plans placed little responsibility on the participant. The transition to DC plans moved that responsibility from the employer/plan sponsor to the participant. With appropriate and responsible actions by the participant, DC plans can offer the same level of retirement security as DB plans. Then again, individual responsibility is a forgotten value for many in our society…sadly.

I’ve been working in the pension world since 1982, but only have two very small pensions from past employers to show for all of this time. I’m glad I’m able to save in my 401(k) plan but feel bad for the lower-paid employees at many companies living paycheck to paycheck that cannot.

I think a DB pension is what most people need because so many people are poor savers. I think if an employer can afford to offer a DB pension benefit it would be good to do so.

It should be a mandatory issue for all, DB plans when designed and funded appropriately are better options, we also fail to look at what went wrong and in most cases, the DC plans we put in place cost the employer more than the DB plan would have had the employer made contributions. DC plans only give the finance dept comfort. Of course, they were the group which overestimated investment return so they could reduce costs to 0 until they were forced to catch up.

Defined contribution plans do not provide retirement income sufficiently. Everyone should have at least one defined benefit plan’s income stream before retiring.

My employer offers both a defined benefit pension plan and retiree health insurance benefits. Working in the HR department, we find that new hires, especially those earlier in their careers, ask if they can forego the pension benefit in exchange for a higher wage which we don’t allow. Employees are required to contribute towards the pension. I know that I am lucky to have these benefits, but many people don’t see the value in them. It’s important for employers to offer a mandatory pension plan that does not allow for loans. Unfortunately, if people aren’t forced to save for retirement, many of them won’t.

As a pension actuary, my answer is “Yes.” However, in reality, I do not believe that employers should be forced to provide a pension plan. Social Security already exists as a forced pension.

Small and medium size companies are not in a position to manage, let alone fund, a DB plan. DC plans are great tools for retirement, but the participants must participate! That doesn’t seem like all that much to ask.

The cost of administering a traditional pension plan and the continued funding that goes along with it has seen its better days. I think the better option for employees today is for companies to provide a higher match on their employees’ 401(k) contributions. This would provide a better incentive for employees to contribute to their 401(k). Unfortunately, with the pandemic, employers have used this excuse to either suspend or reduce the match on 401(k) plans and it will have devastating impact on employees’ retirement funding in the years to come.

I believe that all employers should consider a generous benefits package consisting of health, retirement, and other benefits. However, each employer has to deal with its own circumstances, so I can’t vote “Yes” on Question 3.

It would be nice for more employees to have a pension plan, and I wish I had one, but to say ALL employees should have one concerns me for compliance and administrative reasons.

I think a mix of DB/DC plans is best. DB plans offer employees more baseline retirement financial security, while DC plans provide higher earnings potential.

At what point do we ask employees to take care of themselves? I’d love to have a pension, but I’m saving for retirement and at times it is a struggle. Put the money into savings instead of getting a bigger, better TV.

Sometimes the cost of maintaining such a plan is so much higher that it is just easier to offer a DC plan. At least, they are offering something. I would rather that they offer a DC plan than no plan at all.

DB plans were a great benefit back in the days of having one employer for life. Now that employees job hop so frequently, I am not sure that DB plans continue to offer the same benefit they used to offer. And I think employers can honestly feel that their contributions to Social Security constitute a pension benefit. At least Social Security carries forward from employer to employer. I do think employees need to take some responsibility for their savings. DC plans could be designed to be more restrictive so there would be much less leakage and such plans could provide a more meaningful benefit.

Pension plans are the very best way to fund a retirement. I am lucky enough to be covered by an active plan. The rules and regulations are overwhelming at times. Not sure how a small employer with limited resources could manage a DB plan. If the cost volatility didn’t get them, the regulations would!

To give employees DB pensions again would require such a fundamental shift across the different agencies, company leadership, and shareholders that I doubt I’ll see it happen in my lifetime. I won’t argue that it’s a more efficient way to deliver retirement benefit value, but the past thirty years have been spent making it more difficult to have an active DB plan. It would take something truly transformative, such as a hyperinflation, to get back to it.

90% of people have no idea how much they will need for retirement or how to get there. Pensions take care of that. Paternalistic? Yes. Necessary? Of course.

Since government employees are offered a pension plan, the private sector should be offered one as well. Should be combo DC/DB. Since employee turnover is prevalent these days, many employees would not accrue a huge benefit.

For employees who might not feel they have the resources to put towards an individual retirement plan, this could be a game-changer at retirement.

It’s a nice base upon which employees may add savings for a secure retirement. I’m fortunate in that two of my prior employers offered pension plans from which I have pending accrued benefits. My current employer offers a pension plan too.

A cash balance pension plan could offer better security than the match on most 401(k) plans or profit sharing plans as contributions are required to meet funding levels.

When designed and managed correctly, DB plans are the most efficient and effective way to deliver retirement security to participants.

 

NOTE: Responses reflect the opinions of individual readers and not necessarily the stance of Institutional Shareholder Services (ISS) or its affiliates.

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