As the use of digital and mobile technologies for employer-sponsored retirement plans continues to increase, a paper promoted by the Voya Behavioral Finance Institute for Innovation proposes that plan sponsors and advisers have a responsibility to consider websites and mobile applications that encourage better retirement decision-making.
The paper, authored by Shlomo Benartzi, business school professor at the University of California, Los Angeles (UCLA), Anderson School of Management, and senior academic adviser at the Voya Behavioral Finance Institute for Innovation, discusses how research in the field of behavioral science reinforces that digital resources can have a significant impact on retirement decision-making. For example, Benartzi points to studies that have shown that the number of blank lines on a retirement plan website can help shape an employee’s level of diversification, enhancing the design of an enrollment website can increase the number of workers who personalize their enrollment by 15% and increase overall plan contributions by 10%, and presenting higher default contribution rates in an online enrollment setting that are double and triple the most commonly suggested default savings rate (3%) can increase savings rates without reducing enrollment.
“In an age when many individuals are making important financial decisions on their digital devices, research tells us that the design of screens—how information and choices are presented—can dramatically impact the way workers save,” says Charlie Nelson, CEO of retirement and employee benefits for Voya Financial. “Because digital design can have a strong influence on long-term results, it is important to use design elements that support a plan sponsor’s ultimate goal of helping their employees achieve a secure financial future.”
Andrew Way, director of research – annuity, life insurance and retirement at Corporate Insight in New York City, a firm that examines how financial service companies connect with prospective and current customers via digital channels and provides them with research and actionable recommendations to improve their digital offerings and overall user experience, says currently website and digital design is moderately important but it is growing in importance every year. It is—or should be—part of the request for proposals (RFP) process for retirement plan sponsors, and in terms of participant experience, it is important, he says.
Way adds that access to information can boost participant engagement, but at same time, the use of automatic retirement plan solutions—auto enrollment, auto escalation, default investments—is increasing. “In some ways that mitigates how critically important digital outcomes are,” he says. “Ideally, plan sponsors want participants to be engaged; they still want participants to go onto the plan website and make sure everything is right for them. However, plan sponsors need to be realistic; not every participant is able—or willing—to manage their retirement plan experience on their own.” Not every retirement plan participant has access to a computer or has a Smartphone.
The digital fiduciary?
Benartzi’s paper suggests there is an emerging opportunity for plan sponsors to become a “digital fiduciary” for their plans. An accompanying legal perspective by Michael Hadley at Davis & Harman, says it’s appropriate for a fiduciary to take into account “whether the digital design of a plan’s service provider’s electronic portal properly seeks to encourage and facilitate good decision-making by plan participants and beneficiaries.”
Benartzi contends that the Employee Retirement Income Security Act (ERISA) suggests that the obligations of a plan fiduciary can be reasonably extended to include the digital domain. “While ERISA went into effect decades before the age of websites and apps, the legislation contains a crucial provision, which is that fiduciaries must act with diligence ‘under the circumstances then prevailing.’ In the 21st century, these circumstances certainly include online interactions, as most employees will make their choices online,” the paper says. In addition, Benartzi says, one of the best ways to minimize legal liability, apart from fully complying with the law, is for participants to be satisfied with their retirement outcomes, since satisfied participants are much less likely to make claims against plan fiduciaries.
The accompanying legal perspective says it’s important to ensure use of design elements that are “consistent with the plan’s character and aim to generate adequate retirement savings.”
However, how much say do plan sponsors have on website design and mobile apps offered by providers? According to Way, really large plans have a lot of say in the design of participant websites and mobile apps. “If they are very large, they can pretty much get what they want. We’ve seen extreme customization by recordkeepers,” he tells PLANADVISER. But, according to Way, small and mid-size plans have next to no say at all. They can only choose what recordkeeper to use, and part of that consideration should be the participant, as well the plan sponsor, digital experience.
“I would agree that choosing a recordkeeper is a fiduciary duty, and plan sponsors should consider its digital design, but many other things should also be considered,” Way says.
In his paper, Benartzi proposes seven actionable steps for plan sponsors and advisers, with the first one noting that, “For the largest plans, digital design decisions are typically implemented on a plan-specific website that’s often built by or for the sponsor. For other plans, design decisions are more likely implemented through selecting a service provider whose participant website most closely aligns with the sponsor’s digital priorities.” He suggests establishing a digital policy statement to help consider the costs and benefits of various digital features. He then suggests incorporating design knowledge on the plan committee, by adding a digital expert to the plan committee or ensuring that the plan adviser or another third party executes the digital policy statement when selecting service providers.
Benartzi also says it’s crucial that plan sponsors select plan providers that routinely test different digital designs. Way says one of biggest things Corporate Insight does is track changes on websites and mobile apps of plan providers. “The biggest recordkeepers are constantly updating apps and websites,” he says.
Improving the digital experience for participants
During a presentation at the 2017 PLANADVISER National Conference, Benartzi shared some tricks for using technology to nudge people to save more. For example, if people read fast, they fail to take in all the information. Using digital tricks to slow down reading speed, such as setting off the text with ugly fonts or shadows, will get people to understand and remember what they read.
In addition, people have visual biases. In one study, Benartzi said, people were asked which of three desserts they didn’t like. But when they were asked to choose from three desserts they were shown online, with their least favorite placed in the middle, people always chose that dessert. “Think about where you put savings rates participants can choose on the screen,” he told conference attendees.
He also pointed out that when people have to make a decision with pen and paper, they get more emotional and think about it more. But, with digital tools, they don’t think as much, so participants should be offered a one-click solution to enroll in the plan, but not to cash out.
Way offers some best practices for digital design. First digital communications need to limit financial jargon. “The biggest mistake is assuming employees know what ‘salary deferral rate’ and ‘target-date fund’ mean. If you go out on the street and ask, most don’t know. Digital communications should speak to employees in a clear and concise manner in such a way that they don’t need pre-existing retirement acumen to understand,” he says.
Way also suggests making the next course of action more clear, making complicated processes easier. “We hear from recordkeepers that websites and apps have drop off rates with more difficult tools,” he says. Digital tools should use help icons, or when a participant hovers over certain terms, they’ll see an explanation. Tools may also offer live chat options, a progress meter to show participants what step they are on, or in the beginning, let the user know what he will need to complete the process.
Way also recommends making all necessary information available on a transaction interface. For example, for a salary deferral decision, a digital tool should have the company match rate obviously visible. “Many [employees] don’t know the match formula [of their defined contribution plan],” he says, adding that a digital tool may include a feature that alerts employees if they choose a savings rate below what would qualify for the full match. “Tell them if they increase to this deferral rate, they will get this amount from the company.”Way also says websites and apps should include a visual of the impact on take-home pay of deferral decisions. “Not every employee can save as much as recommended,” he says.