Take a look at any education material targeted at DC participants and it is completely obvious that "the language of DC plans is math," observes industry analyst Warren Cormier.
Math anxiety is a very real phenomenon, prevalent in vast proportions of the population, Cormier notes in his most recent column in NAPA Net the Magazine. “The cruel effect of math anxiety is avoidance behavior,” he says. “Why would anyone want to engage in this optional activity we call ‘retirement planning’? It’s no wonder that financial literacy not improving.”
So if self-directed planning tools and calculators that are couched in "math-ese" are not effective in engaging participants, what does work? A recent research collaboration by NARPP and Cormier’s firm, Boston Research Technologies, addressed that question.
Researchers created an engagement index combining behavioral factors (participants’ self-reported frequencies of interacting with record keeper plan services and channels) with their cognitive involvement (frequency of reconsidering their investment selections, their investment options and the suitability of their deferral rate). Then they built econometric models designed to explain the variance in engagement levels among participants.
The results were intriguing, Cormier reports. “First, we found that increasing engagement is within the control of the record keeper and, by extension, the plan sponsor,” he says. The driving factors can be distilled into four main elements:
- Positive motivation to prepare for retirement
- Creating a belief that retirement readiness can be achieved
- Empowering the participant with a sense that it is possible to be in control of outcomes and the process
- Providing a vision of what success looks like
However, in auditing DC educational materials, “We find that they often (inadvertently) do the opposite, Cormier says. “Messages about the dire consequences of not preparing for retirement are not motivating.” In fact, Cormier asserts, they do the opposite by creating a sense of futility. “The underlying (and often blatant) message to participants is they don’t know enough and need to increase their financial literacy,” he says.
Instead, participants need to be assured that they must plan for the future and that it is within their power/control to achieve retirement success, Cormier believes. A critical part of that assurance of control is building their confidence that they do have either the knowledge to make decisions or helpful resources to help them make decisions. “Our studies and others have shown that the more you believe you know, or have confidence in what you think you know, the more engaged you become,” he writes.
Cormier calls this “financial courage,” noting that a key element in creating it is having a supportive environment that builds up participants’ confidence in their ability to make decisions and take action. “There is often little confidence,” he says. “But we have to start somewhere.”
In addition to Cormier’s regular “Inside the Plan Participant’s Mind” column, the Fall issue of NAPA Net the Magazine includes our cover story on the impact of the DOL conflict-of-advice rule on DCIOs and record keepers and NAPA’s 2016 Top 100 Wholesalers list. The issue also features insights from regular contributors Jerry Bramlett, Steff Chalk, Nevin Adams, David Levine, Brian Graff, Don Trone, Sam Brandwein, Fred Barstein and Lisa Schneider.
To view Cormier’s column, click here and select “The Language of Defined Contribution.” And to view a pdf of the full 64-page issue, click here.
