401k Behavior Measured on Mobile Devices?

A new report uses information from behavioral economist Shlomo Benartzi

401k technology, participants, retirementWhat happens with digital retirement decision-making?

Higher 401k enrollment and better participant outcomes are all about “making it easy,” and a new retirement resource shows an employer how it’s done.

Voya Financial released its Retirement Check-Up Report in late June, which allows plan sponsors to measure the health of their retirement plan based on enrollment and savings decisions that participants make using their mobile devices.

Hiring heavy hitters, the report is the follow-up to a Voya whitepaper entitled “Using Decision Styles to Improve Financial Outcomes–Why Every Plan Needs a Retirement Check-Up” written by behavioral economist Dr. Shlomo Benartzi.

Benartzi, a UCLA Anderson School of Management professor, is also a senior academic advisor to Voya’s Behavioral Finance Institute for Innovation.

“For the first time, employers can measure whether or not participants are engaging in a reflective thought process when making important decisions about their retirement plan,” Benartzi noted.

By looking at the digital behaviors that lead to certain savings rates and investment choices, employers “are able to obtain a unique view of their plan that they’ve never had before,” according to the company.

“If a plan’s average replacement income rate appears to be off track based on its Report score, this can help the employer evaluate its options to get back on course, including a plan re-enrollment strategy,” added Charlie Nelson, CEO of Retirement for Voya Financial.

The whitepaper examined how people make decisions using two different styles, instinctive (quick and without much thought) and reflective (slow and deliberate). Applying this to the digital environment, Voya was able to study and categorize the decision styles of retirement plans.

An index scoring system—the Reflection Index—was then developed by looking at three dimensions of activity:

1) whether participants paid attention online;

2) whether they gathered additional information; and,

3) whether they made any trade-offs.

Through this research, Voya found a significant correlation between a plan’s Reflection Index score and the average projected retirement income of its participants.

A plan that had more instinctive decision-making participants was far more likely to have lower aggregated projected replacement income (below a 70 percent goal). Voya’s analysis found 90 percent of plans were “off track” in terms of projected income and were categorized as being “instinctive” due to their participants’ digital decision-making styles.

Other research has shown many individuals don’t take action to change their savings rates or re-balance their accounts once they enroll in a plan. The company claims the Check-Up Report can serve as a tool to help plans learn when to “course correct” and consider plan re-enrollment.

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