Communicating with participants is, well, required. But more than that, it’s central to helping participants make the most of their participation in a plan. An industry insider argues that an approach that is clear and presents information in a way that makes it real and actionable is best.
Back to Basics
Edward Dressel in the RetireReady Blog stresses the importance of communicating the basics to participants. “Helping people plan for retirement has become so sophisticated and detailed that we often overlook our failure to communicate the basics to them,” he says.
Dressel argues that while it is necessary to provide participants with some details concerning retirement plans, one should not overburden them with plans’ increasing complexity. He warns that failure to do so risks having participants avoid information about plans “for the same reason most people do not read a disclaimer page: It does not engage them.”
Dressel warns retirement plan professionals to not fall prey to the allure of the latest software, which can facilitate more analysis—analysis which may not engage participants anyway. “The changing 401(k) rules and high-tech analytical software can cause us to miss the most basic steps in giving participants information—clearly letting them know where they are today.”
Further, Dressel says, “Focusing on what is concrete to a participant is key when deciding what to include in a presentation.”
Contributions
It is not enough to just tell a participant what percentage of their income they should be putting into their retirement account, Dressel argues. “People don’t think that way,” he says. Rather, Dressel suggests discussing a specific contribution value and what a certain percentage will mean in actual dollars per month. “In this way, a participant can clearly understand the action step,” he says.
But simple math is not enough, Dressel adds. He argues that presenting only a contribution amount can be intimidating and counterproductive. Rather, he thinks that making suggestions regarding step participants can take to contribute a certain level and how a particular contribution would affect take-home pay would be more helpful. “Many participants are willing to sign up for smaller increases each year, but very few are able to make a large increase all at once,” he comments.
“When participants understand how much of their take-home pay they need to be contributing, and the baby steps they can take to get to retirement, they can make informed decisions and increase their contributions to an appropriate level,” he says.
Dressel also suggests addressing more than contribution amount. He suggests also addressing:
- what they would need to save if they retired a year later;
- what additional assets would they need if they had an old 401(k) or IRA;
- whether they expect to inherit money; and
- how much additional money they might need when they retire.
“Providing additional options allows the participants to feel like they have some control over their choices,” Dressel writes.
Information Aplenty
Dressel stresses the importance of providing participants with information, from a variety of vantage points and concerning a range of things.
About the plan. Dressel reminds about the value of providing participants with important information about the plan, which he argues “is key” to participants being in control and to their ability to set a course for a secure retirement.
Be proactive. Dressel advocates being “proactive” about furnishing information and not simply relying on directing participants to a web portal to access information. This approach, he says, will provide context and better address participants’ overall needs.
Participant status. Participants have a “critical need to know where they are,” Dressel says—something he calls “the foundation for making all other aspects of the retirement plan relevant” to participants. This, he says, will make discussions about other aspects of the plan more meaningful. “If participants do not know where they are in their retirement preparedness journey, they become much more academic and detached,” he warns.
Be concrete. Dressel suggests communicating with participants about what they need to do to be financially prepared for retirement in a way they will understand that and includes specific information about steps they can take. He argues against simply relying on the common practice of pointing out target figures concerning savings participants should amass by various ages. He warns that such an approach “won’t resonate” and will make participants “feel behind.” It is much better, he argues, to suggest what a participant can do to make up any difference between those targets and what they have saved.
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