As the economy starts to stabilize, retirement plan experts say plan sponsors need to emphasize certain elements of their retirement education and advice programs to get workers back on track and saving for retirement.
The first thing employers need to recognize is that employees are ready to hear the message again about saving for retirement, says Barrie Christman, vice president of individual investor services at the Principal Financial Group.
"We have emerged from the bunkers and now we are dusting ourselves off. It's time to dream again," Christman says. If employers are in a position to promote their 401(k) plan, then now is a great time to promote a retirement readiness message, he advises.
Steps to take
"Automatic enrollment with auto-escalation of salary deferral rates is the most powerful tool a plan sponsor has as its disposal. There is always a lot of talk about education, communication, and other plan features, but nothing matters as much as getting participants to participate and contribute as much as possible," says Mike Alfred, CEO and co-founder of BrightScope.
To win back employees who stopped contributing to their 401(k) accounts, plan sponsors will have to play the psychology card. "One way is to make sure that the match structure takes full advantage of human nature and participant psychology. If you're matching 100% to 3%, why not match 50% to 6%? Participants seem to respond strongly to this type of incentive," explains Alfred.
He also prefers automated programs like Financial Engines or Guided Choice where the participant is not forced to make investing decisions. "Participants often make poor decisions and trade too often when left to their own devices. Target-date funds are a good idea conceptually, but many of them are fraught with high fees and conflicts of interest, so you have to be very careful," Alfred adds.
"It's 2011 and plan sponsors and participants can breathe a little bit," says Dave Shute, vice president and director of marketing at Transamerica. Shute recommends that plan sponsors institute an educational policy statement listing strategies for addressing employee education within the 401(k) plan.
The statement can examine the key pieces of the plan structure, such as deferral percentage and participation rates. In addition, having an educational policy statement allows the plan fiduciary to stay on course with its retirement education goals. The statement helps drive consistent activity.
"The more tools and programs you can put in place to drive consistent activity around saving for retirement, the more effective your education is going to be for your employees," says Shute.
In addition, financial literacy can't be overstated, because it is on ongoing process, which means employers need to develop tools and programs that address the different levels of financial literacy within their workplace, Shute explains.
"This time of year is a great opportunity for folks to take stock in their retirement plans and the progress they are making toward saving for retirement," explains Beth McHugh, a vice president of market insight for Fidelity. This may mean making adjustment with savings and investments to ensure they are on the right track.
When there is higher confidence in the economy, it's a perfect time to take a targeted approach to communication and to help individuals incorporate a more holistic view of their retirement savings, McHugh says. "You want to help participants to get a clear understanding of where they need to be."
The adoption of auto-increase programs have really increased the saving rates among plan participants, so anything plan sponsors do along those lines is a plus, adds McHugh.
As the economy rebounds, auto-plan designs can not be overlooked. During the financial crisis, "we saw some plan sponsors pull back from implementing programs in the auto-plan design space," says Amy Cribbs, head of participant experience at Vanguard.
With a rebounding economy, there's more opportunity to reinvigorate efforts on auto-increasing participants' savings rates and defaulting them into target-date funds, Cribbs says.
"A strong economy can get those plans that have not adopted auto-plan design or have chosen more conservative designs to implement optimal plan designs that will get people saving and investing in the proper way."
Education is a great reinforcer. Cribbs believes participants who stayed the course in saving for retirement did so because of the reinforcement and encouragement of 401(k) educational programs.
In addition, financial advice programs have given participants built in confidence, because they have access to an expert or the program provides validation of what they had already being doing.
To the extent that plan sponsors don't offer a 401(k) educational and financial advice program, the economic upswing presents a huge opportunity for plan sponsors to reenergize retirement-education programs through targeted education and the broadening of financial advice programs.
"The most effective plan education programs are repetitive. No single contact is going to be successful. It's 'communicate, communicate and then communicate some more,'" says David Wray, president of the Profit Sharing/401(k) Council of America. "Best-practice employers find ways to periodically present employees with information about their plans and investment education."
Plan-related education is also more effective when it is tailored to an employer's workforce and even to specific segments of that workforce, he adds.
Educating employees in person through seminars and workshops is an effective approach, Wray explains. An example of an effective program would be periodic newsletters customized for a company's participants augmented by in person seminars and workshops, he contends. Employers going the extra distance implement individually targeted communications.
For example, a special reminder e-mailed to all those at the company who are not saving enough to get the full company match can be an effective approach.
"As we move into the future, more customized communication and education will be done using new technology supported approaches. These will likely include social networking sites like Facebook and Twitter and direct communication to handheld devices like iPhones," Wray explains.
"Companies supporting participants who want to dive deep into the subject matter have extremely robust websites. Advice is most effective when provided face-to-face. If face-to-face is not practical or too inexpensive then the most effective approach is a telephone call center," he adds. "Most companies provide advice using Internet websites because such websites are accessible 24/7 by participants and are inexpensive. However, studies have shown that participants are considerably less likely to make a change using only advice provided on the Internet."
Bridgeford is an associate editor of Employee Benefits News, EBA's sister publication.
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