Employees need to understand their retirement plan options so they can make the best decisions for their future, but the general public often misunderstands words that are commonly used by financial providers, employers and others in the retirement planning industry, Empower finds.
Though it may seem simplistic, a report from the Empower Institute offers examples of retirement plan terms that have different meanings in common use. For example, “rollover” is a trick one teaches his dog, and even “match” can bring to mind an athletic event or data service, or something used to light a fire with. “Such multiple meanings can cause confusion and create barriers to confident decision-making,” the report says.
Empower Institute conducted three studies spanning 12 months to find out what individuals understand, and what they don’t, when it comes to financial and retirement-industry jargon. It found many commonly used industry terms don’t make sense to their intended audience. For example, 66% of respondents don’t understand what “rebalancing investments” means. A similar percentage—69%—is unclear on the meaning of “asset allocation.”
Millennials in particular found financial terms difficult to understand. For example, 63% of Millennial respondents found the term “plan participant” to be unclear compared with 44% of total respondents. Even the term “defined contribution retirement plan” is reported as unclear by three-fourths (76%) of respondents overall, and 88% of Millennials.
Some preferred terms emerged from the research. For example, 19% preferred the term “employee” to describe an employee with a workplace retirement savings plan, and another 19% preferred the term “participant.” For the amount an employer puts into the retirement account based on the amount of money an employee saves, 32% preferred the term “employer match,” while 21% preferred “company match.” For the percent of their paycheck they put into the retirement plan, 43% prefer the term “contribution rate,” while only 9% indicated they prefer the term “deferral rate.”
However, it’s not just the vocabulary used that can improve retirement plan communications for employees. The survey found participants perceive retirement plan communications as wordy and long, complex and confusing, generic, overwhelming and wasteful. They expressed a desire for communications that were concise, efficient, simple and easy to understand, relatable, personalized and engaging or attention-grabbing.
Empower Institute asked survey respondents how they prefer to receive messages about their retirement plan. Personal email topped their responses both when they were allowed to choose as many methods as they would like (51%) and when they had to select the most preferred method (26%). This was followed by a website visit (44% and 16%, respectively.) The least preferred communication methods were a postcard sent separately from an account statement, a social media page visit, text message by phone and live messaging online, each chosen as the preferred method for only 2% of employees polled.
“By providing clear information via the methods your employees prefer, you can help them be well-informed about their options and confident in their decisions,” the report says.The full report, “Boosting the effectiveness of retirement plan communications,” is available here.