For many 401(k) savers, the most tangible interaction with retirement savings happens every three months or so, when quarterly statements arrive via email or traditional mail. While relatively few participants utilize Web portals to check account balances daily or even weekly, plan administrators are generally required to supply quarterly statements of investment performance and a breakdown of plan expenses to all participants. So it makes sense to look at interactions with these required 401(k) statements to get a baseline pulse on participant engagement, Putnam contends in a blog post published earlier this year.
In the analysis, Putnam breaks down investor engagement with 401(k) statements based on data gathered both before and after the most recent financial crisis. The first data set is from 2004, when investors were in the second year of recovery following the dot-com bubble. The second data set is from 2014, Putnam says. Today retirement savers are about five years out from the start of the Great Recession, during which investors watched an estimated $5 trillion disappear from retirement accounts, according to Investment Company Institute stats cited in the Putnam analysis.
The severity of the Great Recession seems to have diminished overall participant engagement with 401(k) plans, Putnam says. When asked whether they opened the most recent statement from their plan provider, just 77% of respondents said yes in 2014, compared with 92% in 2004. And when asked how carefully they reviewed this statement, a full 36% of participants in 2014 said they either “just glanced” at the statements or did not open them at all. That’s a 12 point jump from the 24% who either disregarded or merely their skimmed quarterly statements in 2004, Putnam says.
With decreased engagement Putnam has also observed substantially decreased confidence. In 2004, 68% of workplace investors said they felt confident about their prospects of saving enough money to live comfortably in retirement. Just 55% said the same this year.
The drop in confidence is even more dramatic on the question of predicted macroeconomic performance. In 2004, 26% of retirement savers predicted the economy would grow robustly in the following year, and another 63% predicted weak growth. In 2014 the results have essentially flip-flopped, with 25% predicting the economy could enter another recession in the coming year and 68% saying the economy will grow weakly. Just 7% say they expect strong growth of 3% or more heading into 2015.
According to Ken Hoffman, a HighTower managing director and partner with the consulting firm’s HSW Advisors team, plan sponsors have multiple interests to consider in rebuilding engagement levels post-Great Recession.
“The first and most important interest to consider is the employer’s fiduciary duty,” Hoffman warns. “Part of the fiduciary’s ongoing role is to build and maintain engagement, and to provide participants with adequate resources to manage their accounts in convenient ways.”
Hoffman says section 404 of the Employee Retirement Income Security Act (ERISA) specifically mandates that sponsors and other plan fiduciaries provide multiple choices or pathways for participants to engage with their retirement accounts. Fiduciaries are also required to provide sufficient education to allow interested participants to make informed decisions about investments, deferrals and other important plan-related matters, he adds.
“We feel that technology is really becoming the answer for driving better engagement in this environment,” Hoffman says. “The providers that are on top of the industry right now are willing to spend huge dollars to make sure that the technology platforms are in place to allow individual investors to get education on the Web and make important account decisions conveniently through the Internet.
“The ability for the participant to understand what they are doing and to move money around quickly on demand, it’s somewhere between a requirement and a desired outcome in the eyes of the Department of Labor,” Hoffman explains.
The second interest for employers to consider, Hoffman says, is that a healthy defined contribution plan with high engagement levels will result in a happier work force with more even age demographics. When employees can prepare successfully for retirement, it typically means they will be more motivated and productive on the job. Workers will not be forced to delay retirement, he adds, which can help keep health insurance premiums and other expenses down.
In Putnam’s analysis, researchers warn it will take more than a quarterly statement makeover to get retirement savers more engaged in their financial future. Financial communications need to evolve and adopt the online marketing practices that touch savers every day. Retirement plan providers need to be more like Amazon and less like Sears & Roebuck, Putnam contends (see “Pulling Out All the Stops on Retirement Education”).
Plan providers have access to a wealth of data about savers, including age, compensation, and deferral rates. Presenting personalized, actionable messages in the context of lifetime income could provide the “nudge” needed to increase engagement, Putnam argues. Key messages for plan sponsors and consulting resources to impart include the following:
- Many savers are leaving money on the table by not taking full advantage of their employer’s matching contribution. Sponsors and advisers should actively segment and target these individuals with specific communications, Putnam says, and demonstrate how maximizing the match can lead to greater savings at retirement age.
- Savers older than 50 are eligible for catch-up contributions to their plan. Plan officials should monitor participants’ birthdays and provide the necessary information to help them take advantage of this feature, Putnam says.
- Give savers a before-and-after snapshot of their paycheck as they raise their deferral rates. Putnam researchers say this will help savers visualize the tax advantages of increasing their contribution.
Savers need personalized information, delivered at the right time, and in the right format and frequency, Putnam contends. By shifting the education and communication model from broadcast to personalization, savers could become more engaged in their retirement, leading to more successful outcomes.