Reframing Participant Communications Is Key for Plan Sponsors to Boost Retirement Savings

A panel of retirement researchers examined participant behaviors that can assist with or deter workers from achieving optimal savings outcomes.   

Plan sponsors should refocus their efforts and evolve retirement plans to align with behavioral designs that boost participants’ retirement savings and help workers to achieve better outcomes, according to retirement researchers.

Their goal should be to pay greater attention to participants’ differences and the influences that impact savings behavior, said Stephen Shu, a visiting lecturer at the Cornell Dyson School of Applied Economics and Management, during the DCIIA [Defined Contribution Institutional Investment Association] Academic Forum. How employers design communications can help workers to make better retirement planning decisions, he added.  

“It’s behavioral design; we have to evolve in terms of how we design systems to help close gaps between people with different capabilities and confidence,” Shu said. “The concept of metrics matters, or how we frame information could be another tool that has not been used enough in the retirement space.”

Plan sponsors have achieved greater participation and higher savings rates through installing automatic enrollment features, but they should not stop there, Shu said. They must delve deeper into “choice of tools” architecture (i.e., the different ways choices can be presented to participants), including communications, to further boost participant savings rates and the total amounts, because retirement plans are essentially a very large tent covering many diverse participants. 

“Not everyone wants to implement auto-features, and even in auto-enrollment there are situations where people are not automatically engaged and have to make choices, whether it’s communication or updates to their elections,” he said.

Shu presented research at the forum detailing how participants’ savings behaviors are influenced by the way information is presented, specifically, a choice to either save $150 per month or $5 per day.

Framing in pennies rather than large numbers or percent terms can lead to better outcomes, Shu said.

When offered the framing of saving at $150 per month, the poll showed that participants with less than $25,000 of income opt in 5% of the time and that workers with $100,000 income opt in 15% of the time. The average savings rate was 7%.  

“When we reframed it as $5 a day, it turns out that the number of people participating quadrupled from 7% to on average 30% of people participating in savings,” Shu said.

Additionally, by presenting clearer information to participants, pennies-framing can democratize retirement savings, research showed. Shu explained that the greatest impacts to altering communications were to boost savings rates for lower-income workers, leading to greater equity.  

The research showed when presented with the framing of saving $5 per day rather than $150 per month, 31% of workers earning $25,000 or less would opt in. The figure jumps from 15% to 30% for employees earning $100,000 with the new framing.

“What’s important to notice is that the gaps between the low-income and high-income groups are reduced,” Shu added.

Another researcher, Vicki Bogan, associate professor at the SC Johnson College of Business at Cornell University and director of Cornell University’s Institute for Behavioral and Household Finance, presented research on mental health impacts to participants’ savings behavior and outcomes.

Her paper, written with Angela Fertig, “Mental Health and Retirement Savings: Confounding Issues With Compounding Interest” examines the influence that depression and mental health issues have on the savings behaviors for participants who are just entering the workforce and for near-retirees.

Over time, depression can lead to behaviors that translate into lower account values, Bogan said.  

“Mental health issues as basic as depression and anxiety can have a large and significant influence on retirement savings behavior,” she said.

Bogan explained that data from the National Institutes of Health (NIH) indicated that more than 55 million people, or nearly a quarter of people in the U.S. over the age of 18, struggled with a mental health issue.

She added that data from the Centers for Disease Control and Prevention (CDC) suggests mental health issues have spiked during the COVID-19 pandemic.   

“When we think about mental health and its prevalence in the population, it’s important to understand how this could, in particular, affect financial decisions and retirement savings behavior,” she said.  

The research suggests plan sponsors should pay more attention to mental health as a component of overall health and wellness, Bogan added.

“This is evidence of another health-related influence on retirement behavior,” she said. “Oftentimes when we think about a connection between health and retirement savings behavior, generally, we’re thinking about it in the context of physical health, having a heart attack or having a physical health condition that influences retirement savings behavior. This research highlights that mental health is a significant aspect or component of health.”