Fear or encouragement: Which tactic do you think would most increase defined contribution plan participant engagement?
Before we get to the answer, let’s look at the two statements used by the Defined Contribution Institutional Investment Association in a new study to determine if participants are more motivated by fear or encouragement:
Fear-based messaging: Caution! We project you’re going to have a 29% shortfall when it comes to achieving your retirement income goal. You will have to make a few changes in order to get to 100%.
Encouragement-based messaging: Great news! We project you’re on track to reach 71% of your retirement income goal. Although you are not at 100% just yet, a few changes can help you reach this goal.
As you might suspect, DCIIA found the fear-based approach led to greater post-engagement, an effect the study’s authors found was surprisingly robust across questions and persisted even when controlling for participant demographics. “Of the two approaches tested, a ‘fear’ messaging approach appears to result in higher subsequent intended engagement,” the paper states.
Notably, the research found either message significantly improved likelihood of engagement actions. This strongly suggests that providing any type of retirement income statistic to participants, regardless of how it is messaged, is likely to improve engagement.
This survey covered only intent to take action, so it is not clear what actions participants would actually take. Another caveat: the study does not provide context on participants that are on either more extreme end of the spectrum (i.e., significantly overfunded or underfunded).
Helping participants to help themselves requires engagement. So how do plan sponsors achieve this level of engagement or action from participants? Use a consistent approach, the study’s authors advise.
Survey data suggests that any type of communication, from cautionary to encouraging messages, can move the needle on engagement. While the cautionary messages were slightly more effective, plan sponsors may want to be selective in this approach and take into account certain participant demographics.
The study, titled, “Engaging Participants: Communication Strategies for Defined Contribution Plan Sponsors,” confirms that communication does work to increase intended engagement in the plan and to prompt action from participants. The authors stress that thorough knowledge of a plan sponsor’s own participant base should be considered when developing a communication strategy.
Mining available demographic information from plan recordkeepers to evaluate a communication strategy is a key to success, the study’s authors conclude.
SEE ALSO:
- 4 Ways to Raise the Bar on a Defined Contribution Plan
- An Effective Strategy to Drive Financial Wellness Engagement
- 3 Financial Wellness ‘Wins’ Illustrate Its Positive Impact
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
