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Benartzi: Digital Design Drives Dollars

Practice Management

The digital age means more than just a universe of information in the palms of our hands. It also means that plans and those who serve them have powerful new tools to facilitate and drive retirement readiness. Behavioral economist Shlomo Benartzi, Senior Academic Advisor for the Voya Behavioral Finance Institute for Innovation, discussed research concerning how digital design can affect – and enhance – participants’ retirement savings habits and ultimately their financial security during retirement. Benartzi made his remarks at an April 8 session of the 2019 NAPA 401(k) Summit in Las Vegas.

If you are a plan fiduciary helping participants, or a service provider supporting a plan sponsor, you should help people to achieve a successful retirement in the 21st century – and that means bringing to retirement planning the same oversight and digital platforms that are currently being used in selecting and monitoring investments, Benartzi told attendees. 

Voya has done extensive experimentation to see if – and how – digital design can help increase plan participation, engagement and effectiveness. 

In one study, Benartzi said that Voya sought to study the extent to which variation in the design of an online 401(k) enrollment interface would affect savings. To do so, they varied the use of colors and language used to describe each option, as well as the presence of additional information about plan details. They looked at the choices of employees across several hundred plans with an auto-enrollment feature regarding personalizing their plan elections, accepting auto-enrollment defaults and declining enrollment. 

The results? They found an increase in personalization of plans, a decrease in reliance on auto-enrollment and a drop in the number of employees opting out. Among those who personalized their accounts, savings increased to an average of 8% of salary; among those who did not, the average savings stood at 3%. The bottom line, said Benartzi, was that for 10% of the population studied, Voya was able to more than double their projected retirement income through a small change in the digital design. 

Voya also studied the effects of displaying different default contribution levels, and the savings that would result from them, on landing pages. They sought to measure whether people are influenced by such information. 

Voya found a “statistically insignificant” change in the rates at which people dropped out of the plan and saved through the plan, at different default contribution levels. The result they found – which they had not anticipated – was that displaying the information in that way increased participants’ personalization of their accounts and their engagement levels. 

“We want to avoid gut-reaction thinking that leads on to the wrong answer,” said Benartzi. “We want people to really think about retirement.” He added that another way to accomplish that is to “make the right choice the only choice.” 

Benartzi suggested actionable steps that can be taken to effectively employ digital design in order to build plan participation and retirement savings:

  • Draft and present a digital policy statement.
  • Incorporate digital design knowledge on the plan committee.
  • Test, test and retest.
  • Employ evidence-based innovation.
  • Follow the science.
  • Make the right thing easy for participants to choose. 
  • Think of 21st century risks (such as cybersecurity and identity theft). 

“There are lots of opportunities it there. Let’s not let the digital revolution go to waste,” Benartzi exhorted attendees.