Part 2 of a two-part series: Simple communications may prevent asset depletion

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Could it be that simple? Could simply changing how we communicate assist in halting, or at least slowing, asset leakage from defined contribution (DC) plans?

Last week in part 1 of our two-part series, Jennifer Flodin, DC Practice Leader and Senior Consultant at Plan Sponsor Advisors, a division of Pavilion Advisory Group Inc., shared her views on plan sponsor communications with the ERISA Advisory Council in Washington1.

The Council is examining issues and considerations related to facilitating lifetime retirement plan participation, specifically the factors that lead participants to leave their assets in, or move them out of, a plan.

In Ms. Flodin’s testimony, she suggested that plan communications could be an important factor influencing participants’ decision-making. She reviewed samples of post-employment, participant communications to determine whether their form and content could potentially influence participant behavior.

She found a difference in the messaging between those firms that market their IRA rollover services versus those that have no such intention. Those firms which seek action from the participant, to assist him or her through this seemingly complicated decision process, prominently display their call center numbers. Those who do not offer IRAs seem to provide the notice more as an obligation on behalf of the plan sponsor, with less color and graphics, resulting in a “form letter” look. “Depending on the business lines of the sender,” says Ms. Flodin, “the current message hits, in the case of a firm with IRA rollover services, and misses, in the case of those who do not offer IRAs, the goal of effective use of behavioral finance.”

Ms. Flodin offered some suggestions to change the messaging to attempt to make a connection with the participant and solicit positive behavior.

  1. Simplify the messaging; make it short, so the decision seems less daunting.
  2. Personalize the message; make it specific to the participant’s generation and account balance. Participants from different generations need to be addressed differently so the message is relevant to them. For example, a participant in their 20’s might react more favorably to a message that is delivered via text message and talks more about savings in general, than a participant in their 50’s who may prefer print communication that specifically addresses retirement savings.
  3. Show the participant, using their specific account balance, the impact their decision to cash-out may have due to taxes and early withdrawal penalties versus keeping the money invested until retirement.
  4. Offer help that is easily accessible, such as a tear-off card in the termination letter with a checkbox that the participants can use to indicate they want an independent specialist to contact them directly and talk through the options.
  5. Include the current record keeping and administrative fees as well as the average, or weighted, investment expense. This would help a participant trying to weigh their options determine which is in their best interest. While this information changes over time, this could be something the record keeper updates annually at the same time it issues 408(b)(2) notices.
  6. Simplify, personalize, and then repeat. A single communication piece may not solicit immediate action. Since it takes work to roll over an account balance (filling out forms and coordinating between vendors), a participant who may have good intentions of rolling over an account balance will put it off, eventually forgetting about it. A reminder message, perhaps via email or text, could trigger follow-up action.

In concluding her testimony to the ERISA Advisory Council, Ms. Flodin said:

there is no question that the current communications many plan sponsors are distributing provide little support for keeping participant balances within the retirement framework as the money was initially intended. And it is even clearer that participants need substantially different tools and messaging in order to retain their money for retirement.

Read Ms. Flodin’s full testimony on Lifetime Plan Participation to the ERISA Advisory Council here.


1Ms. Flodin’s remarks to the ERISA Advisory Council are her own, and do not necessarily reflect the views of Pavilion Advisory Group Inc. nor any of its employees, officers or directors nor any company affiliated with Pavilion Advisory Group Inc. or their employees, officers or directors.