Laurie Nordquist, executive vice president and director of Wells Fargo Institutional Retirement & Trust, said during the 2012 PLANSPONSOR National Conference that enrollment mailers—such as tear-off postcards—are an effective and easy way to improve participation rates. In addition to sending an initial mailer, a follow-up card for those who did not enroll the first time (for instance, after 45 days of the first mailing) could further increase the participation rate.
This method is more effective for participants than using online enrollment or a full enrollment book, Nordquist contended. Enrollment books are not as effective, she added, because they overwhelm participants with too much information at once. Nordquist noted a 49% increase in enrollment rates when using an easy mailer within the first 60 days of eligibility compared with using a full enrollment book. When using a mailer with a follow-up, the increase in enrollment rates rose to 74%.
When devising a communication strategy, Nordquist said it is important to understand participants’ preferences and attitudes. Information must be easy to understand, as participants may have limited financial knowledge. For example, Nordquist noted that less than one in five participants can compute compound interest over two years, and half cannot explain the difference between a stock and a bond.
Plan sponsors must also understand the other financial challenges of participants, such as current bills and children’s education expenses. “You can’t ignore the fact that they have other pressures [aside from saving for retirement],” Nordquist said. “Make it fun and creative, and make it easy to take action,” she added.
Nordquist suggested other ways plan sponsors can help participants improve outcomes:
- Discourage leakage. Companies can discourage leakage with three methods: Allowing balances to remain in the DC plan and establish a systematic withdrawal feature for the plan; facilitating rollover to an individual retirement account (IRA) or another qualified plan; and accepting rollovers of DC plan balances from prior employers.
- Diversify portfolios. “Strategic asset allocation is so key,” Nordquist emphasized. “If we can offer a target-date or a managed portfolio, we are doing the best thing we can for participants.” However, many participants do not use target-date funds as they were intended. Instead of allocating all assets to the appropriate age-based fund, which is already properly diversified for that participant based on age, some participants are using target-date funds as if they were more investment fund choices to include in their own asset allocation split. Plan sponsors should consider requiring participants who choose to use target-date funds to allocate 100% of their investments in the appropriate target-date fund for their age, Nordquist suggested.
- Implement or improve automatic enrollment. “Auto enrollment is one of the best things the industry has introduced in the last decade,” Nordquist said, “but we can do more.” She suggested retroactive automatic enrollment, and beginning the enrollment at 6% instead of 1% to 3%. Employers can then leverage the match contributions to drive participation.