If they’re serious about boosting the retirement readiness of their workforce, employers also need to help employees understand how a projected savings gap relates to their day-to-day financial picture, Gates tells PLANADVISER. Without a road map of attainable next steps and basic financial wellness support, few participants will know how to improve their long-term financial outlook, he warns, leaving even well-designed plans stuck in neutral.
Gates suggest sponsors and advisers look at the advertising strategies of major consumer goods companies to “win” more of their participants’ dollars and start shaping their behavior in positive ways.
“At the end of the day, we’re talking about consumers facing the decision of whether to spend money or save money,” Gates explains. “So at the participant level, our competition isn’t another retirement plan or other financial services organizations. Our competition is Coca-Cola or Cadillac, all these companies that get people to spend money they should be saving. We’re trying to leverage those same techniques to get participants to save more.”
This suggests a channel-agnostic approach should be used for participant support and education, Gates says. In the same way Coca-Cola communicates with customers across a myriad of platforms, sponsors and advisers should provide a variety of employee communication and education tools, he says, from social media portals and online income needs calculators to paper mailings and group participants meetings. The goal is to reach participants on their own terms.
“We don’t dictate how the consumer interacts with us,” Gates explains. “We’re prepared to work with the consumer at every touch point that they are comfortable with. Because once you force the consumer down a given path, say the web or the phone, that’s going to turn off a percentage of the employees and cause even more inertia and apathy.”
Gates admits that establishing a comprehensive financial wellness program can be quite a high hurdle for small employers or those lacking adequate resources to support the retirement plan. He says that, at a minimum, sponsors and advisers need to tailor communications and education efforts to three segments of participants. There are the self-assured investors, the unsure investors, and the apathetic investors, he says.
“Really all sponsors need to be aware of these three demographics and shape their approach accordingly,” Gates says. “A 25-year-old male who has not yet begun to save for retirement and hates to think about investing, compared with a 55-year-old woman who is thinking more seriously about the future, they’re going to require different messages to actually motivate action.”
That said, Gates estimates the unsure investor category represents something in the ballpark of 70% to 80% of all participants in defined contribution retirement plans. It’s the biggest population across age groups and salary ranges, he says.
“This group shows up for wellness meetings and they say, I don’t want to be a CFA so just tell me what’s the best decision so I can go back to work,” Gates explains. “They want to do the right thing but they aren’t necessarily driven to read all the fine print. That’s the biggest group. For them your goal should be to simplify, simplify, and simplify the messaging.”
It’s even more challenging to find a way to reach and motivate the apathetic investors, Gates says, but they can’t be ignored.
“For this group you can’t even talk about what the next best step is, because they don’t care,” Gates says. “The first step has to be to build engagement and get them to start thinking about the plan and thinking about retirement. In our data set we see a shift occur around age 42 on this. Folks enroll before this point but they tend not to start looking at their savings gap and forming a specific plan until around 42. That’s probably too late to ensure the best possible outcomes.”