Retirement income has been a well-tread topic within the industry for years; but the passage of the SECURE Act in December 2019 has changed the tone of the conversation – supporting sponsors in turning talk into potential action.
While the idea of offering retirement income solutions through the DC plan is a concept plan sponsors have contemplated for years, it may be a less familiar notion to their participants. Employees will need to be educated on this new category of solutions that convert retirement savings to a predictable and consistent income stream as well as the given solution that the sponsor chooses.
Here we’re sharing five communication best practices that plan sponsors can leverage in telling the retirement income story, from laying the educational groundwork to curating and customizing messaging across the savings spectrum.
Before getting started, watch the following video demo of an income benefit election tool we have created, intended to bring these five tips to life.
Video content has been blocked in accordance with your cookie settings. You can access this feature by accepting all cookies or adjusting your cookie settings below.
1. Re-define the purpose of the DC Plan for all participants.
Most participants think of their DC Plan as a retirement savings vehicle. What it really is, however, is a retirement income generator. Shifting employees’ mindsets from “savings” to “spending” could be the boost participants need to focus on that end goal – that the money they’re putting away will actually become their paycheck after they stop working. Sponsors could achieve this by providing context around increased longevity and the need to make retirement savings last.
2. Target your communications.
When it comes to retirement plan communications, it’s important to meet employees where they are. Communications resonate best with those to whom the message is most relevant. To achieve greater efficacy, sponsors should consider segmenting communications to reach certain demographics.
For example, as employees near retirement age, they become more likely to engage with their plan. To some degree, this shift is inevitable: Something that will happen in five or 10 years is more likely to grab your attention than something that will happen in three decades or more. Participants over 50 may be more receptive to detailed information about retirement income solutions and education around the options being made available in the plan.
On the other hand, the earlier participants begin saving and planning, the better their chances of meeting their retirement goals. Retirement income may seem like a remote prospect to a 30-year-old employee, but just putting the topic on their radar can increase the probability of participant engagement. With the younger group, sponsors could design interventions that focus on the importance of saving early.
Sponsors should also be strategic about the media they use to reach different groups of participants. Some employees prefer print materials, while others are more likely to engage with digital resources — the latter being particularly useful for streamlining decision-making and steps to take action. Also keep in mind that when a communication is intended to drive a major decision, such as choosing a retirement income solution, it often helps to incorporate one-on-one human interaction.
3. Avoid jargon.
The retirement planning industry is rife with specialized language that’s second nature to professionals in the field. However, that language can be challenging for the average person to decipher, creating another obstacle in an already complex task. Terms like “deferral rate,” for instance, needlessly complicate the simple — yet crucial — task of setting or increasing retirement savings.
Jargon-free communications are especially important when addressing in-plan retirement income options. These solutions are new to employees, and they address a problem that’s not well understood in the first place. For these reasons, plan sponsors should take special care to use simple language and provide easy, clear calls to action.
4. Put the benefit into dollars and cents.
Traditionally, participant statements have shown account balances as a lump sum. Employees are then left with the responsibility of translating that amount into projected retirement income. Providing personalized lifetime income illustrations can better assist participants with retirement planning — and can nudge them to take action.i The Federal Thrift Savings Plan in 2010 began providing lifetime income illustrations on participant benefit statements. According to a Participant Satisfaction Survey, 29% of active participants reported taking action based on the estimate; 12% increased their contributions.ii Likewise, a study of participants in a University of Minnesota DC plan showed that they increased their annual contributions by $85 after receiving lifetime income illustrations.iii This phenomenon hasn’t gone unnoticed by policymakers. In September 2020, the Department of Labor issued its interim final rule requiring that all ERISA-covered defined contribution plans begin providing lifetime income illustrations in their participant benefit statements, becoming effective in September 2021.iv This legislation, along with the precedent set by these plan sponsors, may go a long way in helping participants translate their savings into income.
5. Make the case for longevity planning.
No one can predict the future. But still, people tend to vastly underestimate their own life expectancyv — a disconnect that has obvious implications for retirement planning. The fact is, many still aren’t saving adequately for what could be a lengthy retirement, according to the Society of Actuaries.vi Plan sponsors’ targeted, straightforward, and income-forecast-driven communications can help, as can options that give employees access to more personalized retirement planning advice as they near retirement.
Ultimately, plan sponsors will find different approaches to a retirement income solution that may be best suited for their employees. At State Street, we believe in removing barriers, wherever possible, so that participants have a streamlined experience. One potentially seamless and comprehensive solution could be to amplify the power of a target date fund by giving participants the opportunity to purchase an annuity that activates later in life. By leveraging the communication best practice strategies identified here, we look forward to supporting sponsors in telling the story of a next-generation retirement income strategy defined by flexibility and security.
The information provided does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon.
Investing involves risk, including the risk of loss of principal.
The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGA’s express written consent.
All information is from SSGA unless otherwise noted and has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.
The views expressed in this material are the views of Defined Contribution as of June 1st, 2021 and are subject to change based on market and other conditions. This document contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance, and actual results or developments may differ materially from those projected.
Before investing, consider the funds' investment objectives, risks, charges and expenses. To obtain a prospectus or summary prospectus which contains this and other information, call 1-800-997-7327, download a prospectus or summary prospectus now, or talk to your financial advisor. Read it carefully before investing.
Distributor: State Street Global Advisors Funds Distributors, LLC, member FINRA, SIPC, an indirect wholly owned subsidiary of State Street Corporation. References to State Street may include State Street Corporation and its affiliates. Certain State Street affiliates provide services and receive fees from the SSGA Funds.
THIS SITE IS INTENDED FOR U.S. INVESTORS ONLY.
No Offer/Local Restrictions
Nothing contained in or on the Site should be construed as a solicitation of an offer to buy or offer, or recommendation, to acquire or dispose of any security, commodity, investment or to engage in any other transaction. SSGA Intermediary Business offers a number of products and services designed specifically for various categories of investors. Not all products will be available to all investors. The information provided on the Site is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation.
All persons and entities accessing the Site do so on their own initiative and are responsible for compliance with applicable local laws and regulations. The Site is not directed to any person in any jurisdiction where the publication or availability of the Site is prohibited, by reason of that person's nationality, residence or otherwise. Persons under these restrictions must not access the Site.
Information for Non-U.S. Investors:
The products and services described on this web site are intended to be made available only to persons in the United States, and the information on this web site is only for such persons. Nothing on this web site shall be considered a solicitation to buy or an offer to sell a security to any person in any jurisdiction where such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction.