July 22, 2011 (PLANSPONSOR (b)lines) - Why is it really important to communicate effectively with your employees regarding retirement saving matters? Effective communication benefits your employees, your organization and your plan fiduciaries.
Do you want your employees to die in poverty? Yes, that’s a provocative question, but it’s a legitimate one. Today, according to Census Bureau data, one-in-ten seniors live below the poverty line, and one-in-five unmarried female seniors live in poverty. If an effective retirement saving communications program could protect your employees from this fate, wouldn’t you undertake it? Since you “own” the costs, workload and liability of operating your retirement plan, why not squeeze every possible drop of benefit out of it?
In what ways could communications protect your employees from future poverty?
- Short of auto-enrollment, the most vulnerable employees (those at lower income, lower sophistication and lower empowerment levels) generally need to be “sold” on plan participation.
- Terms such as “income replacement ratios” and “target savings rates” are an unknown language to many employees. They need “plain talk” help to understand how much they need to set aside.
- Many employees freeze up at the mention the words “investment selection”. They need help to understand the basics, even if it is limited to sorting them into suitable age or risk-based models.
- Beyond the basics, they could benefit mightily from a better understanding of the risks they face. For example, after a 30-year Bull Market in bonds, do your participants understand that the “safe”, [bond] end of your investment menu may become the riskiest? (When interest rates rise, bond prices fall.)
- Employees need help to avoid decision errors when the markets get nasty. If they panic and bail out during a severe downturn, they’re cooked.
The “3-Es” (Education, Encouragement and Empowerment) can address all of the employee challenges outlined above, and communication is at the heart of the 3-Es.
How does the employer benefit from effective retirement plan communication?
Satisfied employees might tend to be better employees, with fewer issues, and lower turnover costs. Which employee would likely be the more satisfied one?
- An employee who is being helped by the employer to build long-term financial security for themselves and their family, or
- An employee who has access to the company retirement plan, but no effective education, encouragement or empowerment.
If only every question were so easy to answer…
What about the plan’s fiduciaries? How do they benefit from effective retirement plan communications?
Fiduciaries benefit through reduced liability. An engaged, better-informed participant is likely to make better retirement plan decisions. It’s only logical that better decisions will lead to better outcomes. Good outcomes seldom lead to legal action.