A Behavioral Expert's Guide to Higher 401k Plan Enrollment – The 401(k) Specialist (blog)

(From 401(k) Specialist, Issue 3, 2016)

Too often, employees don’t seem to read and act on requests from HR and their retirement team. I wish it weren’t true, but the posters, the newsletters, the employee retirement seminars—sometimes seem to fall on deaf ears. We can pay people to pay attention, or threaten them if they don’t—but those just hide the fact that employees don’t want to pay attention, right?

As a behavioral social scientist, I study why employees don’t take action—especially when it comes to saving for retirement. One of the most puzzling questions in behavioral science is the “intention-action gap”: when people say that they want to do something, but they don’t actually do it. For example, why employees say they want to save more for retirement, but don’t—despite numerous requests from HR to review and increase their contribution rates.

When employees don’t listen to requests from the retirement team, one of two things could be going on:

  1. You’re saying something uninteresting.
  2. Employees are interested, but something gets in their way.

In the first case, you’re in trouble. But, in the second case, there’s actually quite a lot you can do that improves employee engagement. You just need to know why they aren’t listening. Many of the reasons are actually quite simple in hindsight.

To make things concrete, let’s imagine you or your team is starting a drive to increase 401(k) contribution rates. You’ve already auto-enrolled participants, but the default rate is a low 3 percent, and most employees don’t change it. The company isn’t comfortable automatically increasing contributions to 10 percent (what many employees need), but wants to spread the word about the retirement plan and encourage employees to act. The team sends out an email to employees, highlighting the importance of retirement savings. What could go wrong?

Employees Just Don’t See It

The most limited resource we all have is our time and attention. When you’re developing a 401(k) email with a plan sponsor, you’re focusing on it and thinking carefully about the valuable information therein. But, that’s not how people will interact with the message. Instead, they’ll be quickly scanning through their inbox’s subject lines for anything that is directly important or a fun distraction. The message may not even make it to conscious awareness and be read.

Potential Solutions: For that reason, one of the simplest and most powerful techniques that behavioral scientists use to help people take action is a reminder (e.g. Karlan et al. 2011). Other techniques you can use to increase the chance they’ll get attention include trying different channels (company-wide chat services like Slack, announcements at company meetings) or changing the time of day and day of week of the communications.

Employees Procrastinate

Unfortunately, retirement contributions aren’t inherently urgent. It makes no difference mathematically whether an employee increases their contribution rate today or tomorrow (the same logic holds for going to the gym, of course). And so, it’s easy to procrastinate—until tomorrow, and the day after that, etc., until we really do a have a problem.

Potential Solutions: Open enrollment is one way companies are already trying to overcome procrastination; the problem is that open enrollment season doesn’t mean that employees actually spend the time and thought they need before the deadline; they just have to enter something on the forms by the deadline. Other, more creative, ways to overcome procrastination that researchers have examined include setting specific reference dates (e.g., the first Thursday of the year is when you review retirement contributions) or asking employees to pre-commit to save more in the future (see Thaler and Benartzi 2004).

Employees Don’t Know How, or Can’t, Take the Next Action

It seems obvious—if you send a message about saving for retirement, people should open up their browsers, go to the retirement portal, log in, find the contribution area, and make changes. Well, any one of these steps could be problematic. If employees read email on their phones, and the retirement portal isn’t mobile friendly–they stop.

They might remember to do it later. They’ll also stop if they don’t know the URL of the portal or their password. Or, they may think they need to talk with the HR team to change their contributions outside of open enrollment. Potential Solutions: Remove any friction that would hinder immediate action. For example, start by putting a clear call to action in the message, such as “change your contribution here”. Make it link directly to the portal, so employees don’t have to guess or remember. This direct request that people can immediately act on is what BJ Fogg, head of Stanford’s Persuasive Technology Lab, calls a “hot trigger”—and smooths the path to action (Kosner 2012).

Bridging the Gap

When researchers asked employees at a sample company how they felt about their retirement contributions, 68 percent said they were saving too little (Choi et al. 2002), and 24 percent planned to increase their contributions in the next two months. But, only 3 percent actually did, according to administrative records. That gap between intention (the desire to save for retirement) and the action (actually doing it) is something you can fight. In this article, we’ve armed you with three reasons employees may fail to take action, and what you can do about them—from simple reminders to smoothing the path to action.

Steve Wendel is Morningstar’s Head of Behavioral Science. 

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