“Inertia works for everyone,” says Matt Adamson, senior business leader of total rewards for Mastercard in Purchase, New York. Where possible, automatic plan features can be the best way to get young employees saving—engagement and proactive decisionmaking can come later, maybe after their financial literacy has improved.
When it comes to automatic plan design, says Gerald Erickson, a principal at Milliman Inc. in Minneapolis, the adviser community obviously supports these features. Still, it is important to acknowledge that while popular opinion claims auto plans are the next logical step in improving participant outcomes, “from a plan sponsor and an administrator/recordkeeper perspective, automatic plans are not easy to administrate.”
There’s a lot that goes on behind the scenes, he says, and that may include some mistakes. “I think it’s important for people to understand that it’s not as easy as just getting people to automatically go in the plan and think that’s the end of it. It does require a lot of work from the plan sponsor side, and it does require a lot of work from the recordkeeping/administrator side.”
Plan advisers should be wary of potential complications when designing their automatic features. Most retirement plan advisers are “looking at what makes the biggest impact in getting people in the plan,” Erickson says, which for Millennials may lead them to look at Roth options. “If you add a Roth feature to the plan,” he points out, Millennials that are in a lower tax bracket now can essentially “marginalize their tax hit by taking advantage of the tax-free distribution on the back end.”
Still, “a lot of Millennials are in part-time roles,” and therefore may not be eligible for automatic enrollment in the plan, notes Jinnie Olson, client service manager, also at Milliman Inc. “It’s important for them to remember that just because they’re part-time, it might not mean that they’re completely excluded from being able to participate—they might just have to meet different eligibility requirements. So, rather than working a month or two like a full-time person would, it might take them a year to get into the plan, but they should keep track of [how they can] become eligible so that they don’t miss their opportunity.” Advisers may be able to help simplify these administrative hoops and make the process of opting in easier for participants and plan sponsors alike.
NEXT: Targeted communication strategies.
Speaking for Millennials, Olson says, “We’re really the first generation that’s going to have to fund our own retirement, rather than relying on the typical defined benefit [DB] plan that’s losing popularity, and it can be really intimidating for people to hang onto enrollment packets for a year while you try to meet the eligibility requirements.”
“We’ve got basically three significantly different types of generations that want information in different ways,” says Erickson. In general, Baby Boomers want to receive retirement plan materials printed out, he feels. “Even if you could give them a website, they’d want to print it out and save it,” he says. Generation X is “the website generation,” he adds, and Millennials want mobile applications (apps).
“How you craft certain messages, and how people receive those messages, is definitely different among those three different generations,” Erickson believes, but most retirement plans do not account for Millennials in their plan design and communications.
Adamson charges plan advisers to “be proactive with the plan.” For retirement advisers who are going to industry conferences and picking up tips that may help their plan sponsors, he says, “definitely use those messages and try to be in front of your clients as much as possible.”
“When I’m consulting with my clients,” Erickson adds, “the one thing that we are trying to get across to them is helping them realize there are different approaches necessary for the different generations.” He cited recent research which found that the majority of employers have not significantly evaluated the impact of Millennials joining the work force, especially when it comes to their impact on benefits program design and communications strategies. Advisers can help their sponsors to understand and capitalize on the changing plan demographics to boost retirement outcomes.
“Specific to that younger population,” Adamson says, “communicate the value to them. They’re never going to have a chance to get these years back,” particularly when it comes to the benefits of compounding. “I know it’s tough because they’re paying off college and trying to just pay rent, but these are the early years—and the most critical years, I think—to get into that habit of saving.”
He continues: “You just have to stay after it, there’s no magic bullet.” The retirement industry is moving toward comprehensive financial wellness, Adamson believes, and plan advisers should be focusing on merging each piece of that puzzle to achieve the best outcomes for their participants.
NEXT: Meeting young participants’ needs.
Advisers can help make an overwhelming amount of information more accessible for all participants, Olson says. “You want to be able to give that information to everybody but in a way that everyone has the opportunity to get through it and understand what it is,” she says. “Rather than a 15-page enrollment packet, maybe you pare it down to two pages, summarizing everything, but then give them the opportunity to look into it more later.”
“One thing we’re trying to do now is communicate in some nontraditional ways,” Adamson says. These include putting a rotating banner on their website and making use of what Adamson calls “our electronic bulletin boards.” These are screens placed around the company’s biggest offices, he says. “We might put a teaser up there and maybe an announcement [about the plan].” The message on those boards could be anything, he says: an update about the plan offering, information about election deadlines or extensions. “It could be a call to action or just something top of mind that people should be thinking about,” he adds.
In client meetings, Erickson adds, he has heard back from Millennial participants that they love the financial planning features that allow them to build a roadmap for their futures. Making those tools available online enables younger participants to check them out when they have the time and interest, or even when on the go, rather than taking an hour to meet with someone, Olson adds. Millennials are resistant to any approaches that make them feel they are being pushed into the plan, she says, but they do want to evaluate their financial situation as a whole.
“Another method that’s worked well for us,” Adamson says, “is we provide full financial planning benefits for our U.S. employees.” The advisers do not try to sell anything, he notes, but provide broad-based counsel. “We encourage everyone, but especially that younger population, to call in,” Adamson says. This service can help them determine how much they should put in the 401(k) plan, how to prioritize spending and saving with their income, how to maximize cash flow and manage debt. “I think the direction we’re going is that retirement is one leg of that financial wellness stool, and you need multiple components of that; it’s not just accumulating an account balance.”
NEXT: Earning their trust.
“There is a certain level of distrust in the economy and the broader financial market,” Erickson warns. “It’s specifically profound within a large number of Millennials because of the problems in 2008. It’s fresh in their mind. They might have just gotten out of college and they can’t find a job.” What that means for plan advisers, then, is that younger participants want to have an honest discussion of the issues with their plan.
“One thing that’s very important to the Millennial generation appears to be transparency, open dialogue and creating trust,” he adds. “Fairness resonates there.” So, when it comes to a discussion of plan fees, saying that the plan is free is more likely to put off young workers than to get them engaged. On the other hand, explaining how much the firm is making, particularly if there is a flat, per-participant fee, “people appreciate that kind of dialogue.”
“They understand that there is a cost to this. When you say it’s free, people are naturally going to be suspicious of you,” he says. “People are not afraid to pay for something, for value.” There is a feeling, he says, that “if you’re hiding it, there’s clearly something wrong here.”
Basically, Erickson says, “Keep it simple.” He suggests a one-touch option for participants to increase deferrals or opt out of the plan, but don’t add anything else for them to do; for participants and plans where auto-enrollment is not possible, apply the same principle to opting in. “Don’t give them pages and pages to read,” but one page, ideally with a graphic and lots of white space. In meetings, plan sponsors can expect to hold people’s attention for roughly half an hour, he says, so make the most of that time with by keeping messaging simple and straightforward.