Surveys are a great way to gather valuable intel on what people think, care about, know, and want. In the defined contribution (DC) space, this is no exception. By revealing what DC plan participants want, surveys, coupled with recordkeeper insights into participants’ investment behavior, can help plan sponsors target outreach programs catering to particular needs. They can also help HR committees narrow the focus of a financial wellness program. They can even help inform improvements to plan design. Earlier this year, we surveyed more than 1,000 DC plan participants across the United States to get a pulse check on their sentiments around hot-button DC topics, with a focus on:
Target date funds, and
Here are three key takeaways from our survey, and what they could mean for plan sponsors:
1. Participants favor email over any other communication tactic Sixty percent of respondents rated email as their top preference for receiving communications regarding their employer financial benefits. This isn’t surprising — personal and corporate email continue to be the No. 1 “inbox” that individuals check throughout their day.1 It’s immediate and easily accessible for the many workers sitting in front of a computer. The lowest-ranking choice was a postcard — somewhat surprising given that postcards typically offer short, easily readable messages. But postcards and other print-based retirement benefits communications can add to clutter, or worse, get lost, which will become a problem if they contain important calls to action, deadline reminders, or contact information.
Why this is useful for plan sponsors Printing and mailing communications can cost a plan sponsor thousands of dollars. Though print communications may be required in certain circumstances, if a plan sponsor has a choice, email is substantially more economical. Most recordkeepers can deploy emails for their plan sponsor clients, and even have the ability to track open and click-through rates. Such data can provide invaluable insight into what’s working and what’s not — and can help inform your next campaign. Email also offers a more seamless user experience, especially if there is a call to action, like opting out or making an active choice. Benefits portals or account logins can easily be linked right within the email so a participant can read the message, make a decision, and take action all in one sitting.
This isn’t to say you should ditch print materials altogether. After all, not everyone is sitting in front of a computer. Many organizations have workers on the road, in warehouses, or on construction sites, etc. When planning your communication strategy, an important consideration is where your employees reside and the most effective way reach them. If print communications are a must, try to keep them simple. Incorporate imagery, if possible. And, call attention to the most important information right up front.
2. Target date fund usage is high, but participants still don’t understand them It’s well-known that TDFs are an industry standard — as of 2020, they serve as the default investment option in 87% of ERISA DC plans and account for 31% of total DC assets.2 Of our respondents who said their employer offers a TDF in their DC plan, 64% said they invest in one. We attribute this to the prevalence of auto-enrollment which, when coupled with inertia, has been effective in raising participation rates. But if plan participants have trouble making investment decisions (or don’t want to make a decision at all), there’s a strong likelihood that they also don’t care to learn about those investments. Of the TDF investors responding to our survey, 44% said they “weren’t sure” when asked to choose the correct definition of a TDF. What’s more, 34% said they invest in multiple TDFs, which suggests that misuse of TDFs remains an issue among some employee populations and defeats their purpose as a single-fund, diversified solution.
What plan sponsors can do Participants need education, but it has to be purposeful and relevant. Sponsors should lean on their providers — TDF managers and recordkeepers can assist with outreach solutions and educational content. Participants are most likely to pay attention to such education when it can be practically applied, so consider making it available during a period of change in your plan (e.g., changing TDF providers) or during open enrollment, when benefits are top of mind. Educational programs might consist of webinars or in-person classroom-style sessions led by representatives from your plan providers. Recordkeepers typically have personal finance professionals who can help provide and deliver education in a participant-friendly way. Other potential tactics include interactive web content and videos that you might house on your benefits portal or other microsite, where participants can browse through the content on their own time. As mentioned above, make the participant experience seamless by linking this content to email communications for easy access. Ultimately, an educated participant is going to be better equipped to make informed decisions, if and when the time comes.
3. There’s a desire for retirement income resources The retirement industry has put a tremendous emphasis on accumulation — the saving side of retirement. Over the past decade, more work has been done to help guide participants around decumulation — the spending side of retirement. Many retirees simply don’t know how to safely spend down the savings they’ve so carefully built during their working years. Some are afraid to touch that money at all. According to the National Bureau of Economic Research, only 18% of households take a withdrawal from their personal retirement accounts in a typical year between the ages of 60 and 69.3 So, it wasn’t surprising to find that our survey respondents ranked a drawdown tool as the top retirement resource they would use if offered by their employer, and the second most helpful resource to managing their finances while in retirement (the first was a source of guaranteed income).
What this means for plan sponsors There is certainly an appetite among participants for resources around retirement decumulation. And policymakers have opened the door a bit further for sponsors with the December 2019 passage of the SECURE Act, which effectively made it easier to incorporate annuities into DC plans. But the way forward isn’t simple; while many providers offer guaranteed income solutions today, the market has been slow to adopt them. In the meantime, participants continue to look to their employer for decumulation resources. Sponsors can help support participants with education, online tools, and one-on-one financial consultation. Many recordkeepers offer these services already. It’s important also to stay connected to retirees who remain in the DC plan, a population that has neared or already crossed the decumulation threshold and, arguably, could benefit most from such support. One client of ours has an entire microsite targeted toward retirees, including a curated repository of resources and pointed guidance on topics such as managing withdrawals in retirement and getting more out of Social Security. The site is supported with tools offered by the client’s recordkeeper, including an automatic withdrawal tool that participants can set up for their plan account. So even if you’re not quite ready to adopt a guaranteed income solution in your DC plan, there are a number of ways to support participants who are approaching or in retirement.
DC plans work better when they meet plan participants where they are. Our survey provides a valuable snapshot of participants' preferences, understanding, and level of engagement, which sponsors can use to refine their practices to better suit participant needs. Three main insights emerged from the survey:
Participants prefer email to other forms of communication.
Many participants use TDFs without fully understanding them.
Participants have a strong desire for decumulation resources.
The thread that binds these themes is communication. By communicating pertinent information clearly and via the most effective methods, sponsors can drive engagement with DC plans and empower participants to take full advantage of their many benefits.
1“The New New Inbox: How Email and Social Media Changed Our Lives,” by Pierre Khawand, 2010. 2 Callan 2020 DC Trends Survey. 3 National Bureau of Economic Research, “The Drawdown of Personal Retirement Assets,” by James Poterba, Steven Venti, and David Wise, 2011.
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