Education Key to Prompting Participants to Save

Educated participants have higher levels of trust, higher savings rates and greater use of retirement planning tools, NARPP finds in a report.

When retirement plan providers take the time to educate participants about the importance of saving for retirement, this builds a level of trust that results in higher savings rates and the use of retirement planning tools. This is the key finding of the National Association of Retirement Plan Participants’ (NARPP) second annual Retirement Plan Participant Financial Empowerment, Literacy and Trust (FELT) Study.

The data shows that a provider’s education program and levels of trust are closely intertwined, says Laurie Rowley, NARPP’s co-founder and president. Education can create the necessary trust that encourages people to participate in the plan, increase their deferral rates, and use retirement planning tools and calculators, she says.

However, participants’ level of trust in their financial institutions is low, the FELT study found. A mere 13% trust financial institutions, and only 38% are satisfied with providers’ education programs. Surprisingly, though, 63% of participants answered the questions in a financial literacy questionnaire correctly.

Recordkeepers and advisers need to do a better job of educating participants, Rowley says. “Current education materials are generally jargon-filled and complicated, and they often include a healthy dose of thinly veiled sales information,” she says. “People react negatively to these messages, especially Millennials. It’s the 21st century; people expect—and should demand—simple, customized messages that are relevant and engaging.”

Education is critical, since “employers and their employees and relying on service providers in helping to secure a financially stable future,” she says. “We need to start measuring success not just in terms of assets under management, but in more human-centric metrics, like the factors that contribute to retirement readiness. Obviously, the provider is not entirely responsible for participants’ savings behavior, but they can have a huge influence in helping people achieve retirement security.”

Next: Education Needs a Reboot 

Auto can’t Stand Alone

Auto features alone are not enough to improve savings, Rowley contends. Participants need effective communication to help them make better decisions, an d advisers and plan sponsors need to press their service providers to start innovating in education. Rowley notes that both plan sponsors and advisers have historically given low ratings in satisfaction to education programs.

Bank of America Merrill Lynch ranked as the top provider in the FELT rankings. David Tyrie, head of retirement and personal wealth solutions at Bank of America Merrill Lynch, attributes this to the bank’s “range of financial education resources across several channels, including in-person, phone, online and via mobile devices, so employees can choose the avenues that fit their needs and preferences.” Tyrie says Bank of America Merrill Lynch is focused on “helping people make more informed decisions, achieve better outcomes and improve their overall financial wellness” and notes that “there’s work to be done across the industry to further improve participant programs and confidence.”

Sylvie Feist, director of financial guidance services at Bank of America Merrill Lynch, says that while the bank has “been communicating the importance of saving,” it has gone beyond to “meet them where their needs are.” That has led to the development of seven life priorities that the bank works with employees on: work, home, health, family, leisure, giving and finance.

Feist says the study should underscore for advisers and plan sponsors the importance of working with them to achieve what is important to them.

The top 10 FELT Score recordkeepers are:

1.)  Bank of America Merrill Lynch
2.) Fidelity
3.) Vanguard and Nationwide (tied)
4.) Empower and Wells Fargo (tied)
5.) Charles Schwab
6.) Hewitt
7.) T. Rowe Price
8.) Voya
9.) Prudential
10.) Valic

The findings mirror NARPP’s 2014 FELT Study that revealed only one in four (26%) of participants believe they can “always trust” their recordkeeper to do what is right, and only 37% said information that their recordkeeper presents to them is always in their best interest.