Most employees access their 401(k) and 403(b) accounts electronically and most communications with plan participants by plan sponsors, advisors and providers are digital. But have we looked at how people digest information differently on the screen compared to on paper and what are the implications for ERISA fiduciary rules managing their company’s defined contribution plan? The entire area is explored by behavior economist and UCLA professor Shlomo Benartzi in his new book, “The Smarter Screen: Surprising Ways to Influence and Improve Online Behavior”.
Benartzi is well known for introducing behavioral finance theories to the defined contribution industry through his book “Save More Tomorrow” which provided the intellectual underpinnings for the 2006 Pension Protection Act which inlcuded safe harbor for the “ideal plan” which leverages now popular auto features.
In a Harvard Business Review article Benartzi suggests that thoughtfully redesigning the user interface can have a huge impact as evidenced by the improvements made by H&R Block on government student loans. Improved screen design resulted in 25% more people likely to attend college. Over trading by investors focused on short term results was diminished in Israel by simply changing returns to longer term results.
Many people do not sign up for their DC plan because the online process is too difficult as is accessing their accounts. Working with a record keeper that has thought through the issues posed in a digital age could not just drastically improve participation and outcomes, it could limit fiduciary liability.
Though the DC industry is still experimenting with using big data and technology to help employers and their workers improve and manage their retirement plans, it is well behind other industries like social media. The good news is that much of the technology is available and, if improving digital interfaces has even half the impact that auto features have had on DC plans, the results will be significant
