Kristi Mitchem, senior managing director and head of global defined contribution for State Street Global Advisors, offers the following five tips for employers to help engage employees in retirement saving and planning:
1. No jargon or investment speak. "We use jargon we don't even know is jargon," she says, noting that a recent survey of plan participants conducted by SSgA revealed a large number of people don't understand words that are so common in our investing nomenclature.
For example, words like "bond" and even "fund" were not well understood. "Think about how to talk in plain, simple English without a lot of terms that confuse participants," she says. "We encourage plan sponsors to do a jargon audit on their communications and watch for terms that might be off-putting." And if you do use jargon, include a glossary.
Break down process into small, easy steps
2. Keep it simple. "One of the things we hear consistently from participants is that they want it [enrollment and participation] to be easy," says Mitchem. "Break it down into simple, easy steps. Where you can, take processes that might seem complex and make it easy."
3. Understand the frame and devise easy-to-use translation tools. Participants have a way they think about certain facets of retirement planning.
"The way participants think about retirement savings is in terms of deferral of their current salary - what they're putting away today," says Mitchem. "They don't think about it in terms of 'what's the balance I need to achieve when I'm 65?' or 'income replacement ratios.'" Focus on talking to plan participants within the frame they're using. "Let's talk to them about percentage of salary saved," she continues. "A good benchmark is 10% to 15%."
If you want to get people get into the practice of thinking about income replacement ratios start with what they know and are comfortable with, which is percentage of salary deferred. Then, give them an easy tool to convert that into an income replacement ratio.
Greater savings potential
4. Don't underestimate savings potential. Thirty-six percent of respondents in SSgA's survey say that if they really had to tighten their belts they could cut 15% or more from their household budget. Twenty-eight percent said they could cut 10% to 14%.
5. Automate success. Employers could consider "automatically placing people into an elevated savings rate for a specified period of time, say six months, to see if they can actually do it," says Mitchem. "But instead of forcing them to sign up for a higher savings rate, you allow them to opt out if it's not something they want to do."
