Cover:Failure to Communicate

After trying for years to transform ordinary workers into savvy financial strategists, plan sponsors are learning to simplify their 401(k) messages

"There's very little debate that the standard, traditional approach to communication—sending out brochures that are generic in nature and very detailed—has not been particularly effective," concludes Lori Lucas, participant research director at Hewitt Associates. "People are not motivated to read these generic communications. There is more and more a consensus that many people are reluctant consumers of the 401(k) plan."

For much of the past two decades, employers embraced one of two approaches to 401(k) communication. One was shockingly minimalist: Send out occasional statements confirming account balances or plan changes, then get out of the way. The other was audaciously ambitious: Try to turn workers into savvy financial strategists by throwing an endless stream of brochures, manuals, newsletters, and workshops at them. Some employers fell into a middle-of-the-road routine, of course: mailing generic quarterly account statements and annual enrollment packets, punctuated by the occasional educational seminar.

The common denominator in all this communication was its generic quality, constructed to address an audience so broad that it missed the special circumstances of each employer's workforce.

Workers signed on anyway, to be sure. About three-quarters of all workers who have access to a retirement savings plan today make use of it, estimates David Wray, president of the 401(k)/Profit Sharing Council of America, but that still leaves about a quarter who do not, and many who defer too little, diversify inadequately, and pluck money from their plans too freely.

However, some innovative plan sponsors and providers are finding that the way to boost and improve 401(k) participation is deceptively simple. They are developing communications programs that do not rely on expensive gimmicks or impossible-to-duplicate strategies, but on the same tools available to any plan sponsor: printed materials, workplace meetings, informative Web sites. Their programs differ from less effective ones principally by delivering messages carefully constructed to address the issues most important to their workforce and targeted to the employees who most need to hear them.

Plan providers whose communication materials and educational programs scored highly in our annual Defined Contribution Survey say the solution should be broad enough and flexible enough to offer something specific to everyone: the financially confident investor who wants detailed information about her plan and how to use it; the interested but uncertain investor who appreciates information but needs it in small, easily digestible bites; and the disinterested investor who wants solutions, probably automated and requiring minimal effort (see "Keys to an Effective Communications Program," page 40).

"We've gone from spending a lot of time talking about the terminology of investing, and sort of the classic educational approach, to identifying the key things you need to focus on to achieve your goals for retirement," says Paul Henry, director of strategic planning and market research for plan provider Manulife USA. "The emphasis is on helping people make good decisions and get where they want to be."

By definition, such a program features messages that are specific to the recipient rather than generic to the plan and targeted to the appropriate participant subgroups rather than the entire plan population.

"When you get something at your house that's got your name, your pay level, and your information on it, you're going to pay attention—particularly if it's short and to the point," explains Patricia Dodd, a communication consultant in Dallas with plan provider Milliman. Often, the program will include a human touch: ready access by phone to a call center, perhaps, or even face-to-face meetings with investment advisors (see "Lands' End Goes One-on-One," at right).

While all that customization might sound expensive, it generally is not, in part because plan providers are not re-creating the wheel for each participant group but, in many cases, are simply emphasizing the message most appropriate to those employees. "From an aggregate standpoint, there may even be some savings," observes Henry. "We may be printing less paper." He says plan sponsor clients who ask Manulife to help them develop a tailored communications program typically would pay no extra charge for that service. "By segmenting the participant population, it's also possible to use other delivery channels such as e-mail and the benefits Web site, and so forth, to do some targeting, and that's obviously going to be much more cost-effective [than a print campaign]," adds Lucas.

Even if a plan sponsor did want to create a communication program so unique that it required extra spending, the added cost would have to be weighed against the potential benefit; some sponsors might consider it a bargain compared to a generic program that carries a smaller price tag but bears little or no fruit. "We worked with one plan sponsor who had sent out a mass generic communication to non-participants and got virtually no response," Lucas observes. "It was a traditional, informative communication about the employer match and the benefits of investing. That same sponsor later worked with us to develop a program focused on the disinterested, procrastinating, younger type of investor—and got a response in excess of 15%. So, in terms of cost, it's really how you view it," she concludes.

Rusty Field, vice president of financial education and planning services for American Express Retirement Services, concurs. "Trying to do communications in a single medium with a single message to an entire employee population is cost-efficient," he allows, "but it is not something that impacts people. And that is our objective: to cause people to change their behavior."

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