Digital Design Improvements Benefit Plan Participants

Target Date FundDigital design improvements can be implemented to increase retirement plan participation rates and participant savings rates.  To enhance 403b or 401k plan participation consider digital design improvements.  This can be accomplished through  voluntary enrollment and contribution rates, according to new research cited in Harvard Business Review.

Professor Shlomo Benartzi, of the Behavioral Decision Making Department at UCLA’s Anderson School of Management and Saurabh Bhargava, Associate Professor of Economics at Carnegie Mellon University developed their working paper with Lynn Connell-Price, of the Risk Management and Decision Processes Center at the Wharton School of the University of Pennsylvania and Dr. Richard Mason at City, of the University of London. The researchers worked in a collaboration with Voya Financial to explore how digital design improvements of online enrollment interfaces influence a participant’s  initial contribution decisions of employees in 401(k) plans.

Behavioral finance research continues to be a catalyst of plan design features such as automatic enrollment and automatic contribution escalation. Therefore it’s not surprising that researchers are tapping into its potential to influence the design of online retirement plan enrollment platforms.

The research conducted by Professor Benartzi and his team sampled approximately 8,500 employees and a few hundred 401(k) plans. Before being automatically enrolled in the retirement plan, the employees visited a standardized online enrollment interface to complete any one of three actions — actively confirm their enrollment at the default rate, personalize their enrollment at a different rate or decline enrollment altogether. To complete the task, the employees had to select from one of three horizontally arranged options. The goal was to prompt employees to consider a higher deferral rate than the default.

The researchers wanted to learn the significance the digital design improvements would have on employees’ initial enrollment decisions.  For that reason, they randomized employees to one of the two versions: an original commercial design, or an “enhanced” design that included three small changes:

  1. Changing the original color scheme of the options from a single color (orange) to a traffic light theme (incorporating green, yellow and red.
  2. Displaying the plan’s default rate on the enrollment screen – thereby, making it easier for workers to account for this information.
  3. Simplifying the language used to describe the alternatives, removing uninformative fine print and simplifying the headlines describing each option. As an example, “Do It Myself,” or “I Don’t Want to Save.”

Researchers discovered, personalized enrollment rose by 15% — a nine percentage point increase from the baseline of 60%. The shift to personalized enrollment also increased savings rates.  Employees who personalize enrollment tend to contribute at a rate (7.8%). That is twice as high as those who are automatically enrolled (3.4%).  Researchers estimated that the design changes led to an increase in overall contributions equivalent to a 60% increase in the typical plan match.  Performing simple design tweaks to the online enrollment platform is significantly less costly for employers than offering additional matching contributions.

The findings are consistent with other studies that have been done in the field of digital design improvements.  There is a tendency to underestimate the importance of digital design improvements.

They offer these five steps to create behaviorally informed designs:

  • Gather behavioral insights on screen behavior, benefiting from the growing academic literature.
  • Conduct a behavioral audit of the existing digital designs, identifying gaps between the status quo and new designs that incorporate the latest insights on screen behavior.
  • Test these new designs against carefully selected control conditions.
  • Once a winning design is identified, scale it up, implementing across as many digital journeys as possible.
  • Keep a searchable “results library” of all experiments.

Plan sponsors whose employees use an online platform for retirement plan enrollment — or any type of benefit enrollment, for that matter — should review the offering.  When applicable, discuss with service providers the potential for modifying the digital design to help influence employee behaviors and prompt them make personalized decisions.  As Professor Benartzi opined, “Design isn’t the garnish — it is often the key ingredient.”


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