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Effective Communication Begins with Purposeful Plan Design
Learn why your success in helping your participants prepare financially for retirement starts with the careful and thoughtful review of your plan design.
Plan design is the basis for plan success
As a plan sponsor, your success in helping your participants prepare financially for retirement starts with the careful and thoughtful review of your plan design. Your ability to influence your participants’ behavior so that they are more likely to achieve their retirement-readiness goals is predicated on having not just effective communications, but purposeful plan design as well.
Make sure your plan’s features and design don’t unintentionally impair—or even sabotage—the very behavior you wish to encourage! This is especially important when you work with your plan provider on developing a communication and education program. Not even great communications can make up for counterproductive plan design. Participant communications and other education materials need to support plan objectives, which should be considered first and foremost in the context of how the plan currently works. Before delving into the development of communication materials, spend time to determine your communication goals, and then take a hard look at the plan itself. Is your design inadvertently generating the need for inefficient and broad-based communications—time and energy that could be better spent on targeted messaging?
Maximize every opportunity to affect behavior so that your employees have the best chance of having a well-funded retirement. But start with a solid foundation built on thoughtful, effective plan design. Make sure every business decision about your plan is considered in light of the effect it will have on participant behavior. And conversely, be sure every desired change in participant behavior is addressed through business decisions about your plan, including the thoughtful addition of well-crafted service features.
Enrollment methodology impacts participation
If a healthy participation rate is the way you measure the success of your retirement plan—and if increasing plan participation is one of your primary business goals—then automatic enrollment is certainly the way to go. But be sure to implement automatic enrollment in a way that optimizes its benefit for participants. Today, more than half of all plans that automatically enroll employees use a default deferral rate of 3% or less.1 However, the average opt-in deferral rate is significantly higher—9%! So in trying to do the right thing, there is a real danger that sponsors might be doing participants an unintentional disservice by automatically enrolling employees at a default deferral rate that is way too low.
And while plenty of evidence exists to demonstrate that opt-out rates do not increase significantly with default deferral rates, auto-enrolling employees with a rate that is too low may in fact do just that—because employees don’t find the contribution meaningful enough! So don’t follow the crowd. Carefully consider setting a default rate that is appropriately positioned to help you meet your business objectives. Set your default rate at least as high as your current opt-in rate, and be sure to integrate automatic escalation to improve participants’ retirement preparedness over time. And here’s proof: The average account balance in plans with automatic escalation is $43,042, compared to $28,234 in plans without this service feature.2
Download this 17 page Whitepaper to learn more.
1 Report on Retirement Plans – 2011, Transamerica.
2 Retirement Plan Trends in Today’s Healthcare Market – 2011, Transamerica.
