TOTAL PLAN ASSETS/PARTICIPANTS: $12 billion/221,000
PARTICIPATION RATE: 64% for State of Ohio employees
AVERAGE DEFERRAL RATE: 9.3%
DEFAULT DEFERRAL RATE: Only five of 1,800 employers in the Ohio system auto-enroll, at $15 per pay period
EMPLOYER CONTRIBUTION: Three of the system’s 1,800 employers provide a DC match, which varies by employer
Ohio Deferred Compensation Executive Director Keith Overly first got interested in behavioral economics in 2005, when he heard University of Chicago professor Richard Thaler speak about his renowned research in that area. Thaler’s early advocacy for plan design to automate participants’ contribution-increases was especially intriguing to Overly.
“He discussed how inertia had a negative impact on savings,” Overly recalls. “Through our own subsequent analyses, we determined that our participants’ behaviors were consistent with his research outcomes. Once someone’s enrolled, it’s often a ‘set it and forget it’ mentality. If we don’t remind participants to increase contributions or enroll them in automatic escalation, most tend not to change contributions for many years.”
Because of this, Ohio Deferred Compensation (Ohio DC), headquartered in Columbus, developed an auto-increase pilot program, which began in 2007. It then rolled out voluntary enrollments for automatic increases to all participants in 2008. Since then, Overly and his Ohio DC colleagues have continued utilizing behavioral-economics insights in the $12 billion 457(b) plan’s communications to its 221,000 participants.
For example, to keep education about complex retirement topics as simple as possible, the plan developed a series of two-minute videos on retirement and investing subjects featuring the 9-year-old “Professor Penny” character it created. In one of the series of live-action videos, found on the plan’s website, she highlights several specific steps to take as part of a three-month pre-retirement checklist for state employees nearing their retirement date.
The most visible changes Ohio DC has made with behavioral economics in mind include alterations to its EZ-enrollment and SMarT auto-deferral-increase-enrollment forms, says Joshua King, marketing and communications manager. The plan does its recordkeeping in-house but has collaborated on these changes with outside behavior-change researchers including Dartmouth College professor Punam Keller, to make the forms shorter and easier to understand.
“Some of the changes were based on language and some on graphics,” King says. For example, the SMarT enrollment form used to require a participant to opt in, but the plan changed the form in 2015 to require opting out. “That has made a significant difference,” he says. “We went from 8% opting in when participants had to check a box to [do that], to 68% retention when they had to check a box to opt out.”
Ohio DC also has utilized behavioral economics to simplify its communications to participants about investments. “Based on our own experience, along with input from Invesco, we learned that there are a lot of terms and jargon specific to the finance and retirement industries that are off-putting to people saving for, and in, retirement,” King says. “So we’ve tried to make sure we don’t load our informational and communications materials with financial language. We try to make everything more understandable and eliminate some of the preconceived notions that people have that retirement saving is difficult.”
The plan began reducing the number of funds on its investment menu, starting at 21 in 2007, to simplify participants’ decisionmaking. Most recently, in 2013, it decreased the fund options to 17. “We learned that having too many options can cause people to become overwhelmed,” King says. “Then they either choose not to participate or make bad decisions.” —Judy Ward
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