Geography Provides Insight for Targeted Communications

May 21, 2014 ( – Geographic trends can tell 401(k) plan sponsors where, and how, to target their messaging.

San Jose, California, took the top spot for highest rate of employee contributions (11%) as well as the highest total savings rate (15%), including employee deferral rate plus employer contributions in the 401(k) Geographic Trends from Fidelity Investments. It’s great that San Jose is doing so well, but it is important to look at trends and participant patterns of success across the country, Meghan Murphy, director of thought leadership at Fidelity, tells PLANSPONSOR.

“A lot of employers have employees spread across the country,” Murphy says. Geographic trends can tell a plan sponsor where the firm needs to ramp up messaging and engage participants so they can reach retirement goals.

San Jose’s population is one million, but Murphy points out that a city’s size is not the most important factor. “Employers are really making a difference in smaller cities,” she says. Raleigh, North Carolina, has a population of about 400,000, but the analysis ranks them in the top five of cities with the highest total savings rates (14%).

Company match can make a difference, Murphy admits, and Raleigh is in the top five areas with the highest employer contribution rates (5%). But company match or profit sharing are not the only ways to drive plan success. San Jose has the highest average employee contribution rate, but its average employer contribution rate is the lowest (3.5%). “Good plan design plays a part,” she says.

The right options in the investment lineup can help participants meet goals, Murphy says. Target-date funds (TDFs) and managed accounts can help people invest smarter when they don’t have the skill, will or time to make investment decisions on their own. “We admit investing can be scary for someone without a background or who doesn’t know how to take a first step,” she says. TDFs and managed accounts give them the benefit of professional management.

One surprising finding of the analysis is the percentage of people who invest on their own—the do-it-yourself (DIY) investors—who overwhelmingly take little or no action after they make their initial investment selections. In El Paso, Texas, nearly two-thirds (64%) of DIY investors are not in TDFs or managed accounts, Murphy says, but in two years they have taken no action. They have not checked or changed their investments or used guidance tools.

The number of inactive participants is higher than people think, Murphy says. Other cities with a high percentage of unengaged DIY investors are Chattanooga, Tennessee (62%); Honolulu (62%); Fresno, California (60%); and Youngstown, Ohio (60%).

These participants are ripe for communication from a plan sponsor, such as a campaign to make sure they are aware of all the available options, Murphy points out. About 80% of plan sponsors have a target-date default option; plan sponsors should make sure employees know this option is available.

“If someone’s investing needs are more complicated, perhaps with outside accounts, a managed account might be right,” Murphy says. Plan sponsors can encourage participants to seek guidance, gain knowledge from a registered representative or use tools to make more informed decisions. “One phone call could be a game changer,” she says.

Millennials have a lower rate of disengagement, Murphy says, at 44%. Auto enrollments and annual deferral increase programs are generally helpful to drive retirement success for participants, she notes, but they are even more successful with Millennials. “Auto enrollment gets them in the door to start,” she points out. “But half of all increases for Millennials are auto increases, so that is a huge help.”

Some plan sponsors might want to consider auto increases up to 12% or even 15%, Murphy adds. Plan sponsors should scrutinize their own plans and understand how plan design can impact their employees’ savings goals.

According to Murphy, income projection analysis lets participants see how much of their income will be replaced in retirement and helps them sets goals.

Fidelity Investments based its analysis on 13 million 401(k) investors across metropolitan regions, as identified in the 2013 Census Estimate. More information about the research is here.