The education of your employees is the most important component of your company 401(k) plan. The right ‘words’ can mean the difference in a successful retirement outcome.
In the end, the paper concludes “small numerical cues can influence decisions as economically significant and familiar as retirement savings plan contributions. Low cue decrease contribution rates by up to 1.5% of income, and high cues increase contributions by up to 2.9% of income.” Moreover, the researchers write, “unintentional cues buried in mundane communications can also affect behavior. Thus, organizations and policymakers should take responsibility for the cues they disseminate and wield them mindfully.”
Said another way – and this is why the conclusion is of vital importance to 401k plan sponsors – even an innocent aside written with seemingly appropriate disclaimers can unduly influence 401k investors. And increase plan sponsor fiduciary liability.
Thus, Choi warns, “Plan sponsors should be mindful of the savings cues they include in their communications to participants. If they want to encourage high contribution rates, then their communications should only contain high contribution rate cues, not low contribution rate cues.”
But there may be an easier and less risky way to increase employee savings rate. We’ll leave you with this added tidbit from Choi: “One of our findings is that mentioning the very high match threshold at this company raised contribution rates. This is evidence that participants use the match threshold as a cue for their own contribution rate. Therefore, implementing a high match threshold, even if it means that the matching rate has to fall, will raise contribution rates.”
Be careful what you say to plan participants. They listen.
Please comment or call to discuss how you can help your employees save more for their retirement.