We all know that it’s hard to reach employees about their benefits through traditional communications channels but no one has seemed to crack the code on what to do. The defined contribution (DC) industry spends billions of dollars on employee education, trying to communicate and educate retirement plan participants but the results are dismal. A recent study outlines the failures with some suggestions on how the efforts can be improved.
According to a study by the International Foundation of Employee Benefit Plans (IFEBP):
- 80% of employers says that participants don’t open or read the materials sent to them about their benefits
- 49% indicate that their participants don’t understand them
- 30% says that participants don’t see any value
Warren Cormier, a leading DC industry researcher, has famously declared that employee education of retirement plan participants has mostly failed blaming:
- Auto-enrollment – people are less likely to be engaged when they don’t take action
- We try to teach financial literacy but most people don’t want to learn
- Curse of knowledge – we don’t know what it’s like not to know
- Jargon – the financial services industry is full of terms people don’t understand
So what to do? A study by Broadridge suggests that we must move from communication to experience making the message personal and actionable. Combining in-person meetings with digital interfaces is most effective giving people information when they need it or “just in time” (pay raise, child, marriage) making it easy and convenient to take action using mobile devices. People like interactive tools as well as benchmarks to see what others like them are doing. Static account balances will not make it any longer.
Adults don’t learn well from just listening and reading – they learn more from interacting. Adults also intuitively don’t trust experts – they trust peers more. Though automatic plan features can effectively get people into a DC plan and even get them to save at a reasonable rate investing wisely, the challenge for DC service providers, advisors and plan sponsors is to engage them through entertaining, just in time, customized, actionable and simple communications. More to come – hopefully.
