People forget how powerful a tool simple—yet accurate—communication can be, a key to an uptick in understanding and therefore enrollment when applied to 401k plans specifically.
Yet too much time is spent in the morass of misperception due to the use (or overuse) of industry jargon, a new whitepaper from Empower Retirement argues, something detrimental to participants and sponsors alike.
Consider commonly used 401k plan terms that have far different meanings in other contexts, such as contribution, match, election, rollover and vehicle.
“Words have the potential to inform, encourage and empower,” the Colorado-based company notes. “But the wrong words can be powerful in negative ways, leaving people uncomfortable, overwhelmed or confused. Using the right words is especially critical in financial matters.”
Employees need to understand their retirement plan options so they can make the best decisions for their future, it adds, but the general public often misunderstands words that are commonly used by financial providers, employers and others in the retirement planning industry.
The paper, aptly titled “Boosting the effectiveness of retirement plan communications,” found many commonly used industry terms don’t make sense to their intended audience, citing its own previous research in noting 66 percent of respondents don’t understand what “rebalancing investments” means.
A similar percentage— 69 percent — is unclear on the meaning of “asset allocation.”
“When it comes to retirement planning, all of these terms have meanings that are completely out of step with the definitions,” the authors write. “Most people associate with them. Such multiple meanings can cause confusion and create barriers to confident decision-making.”
As for solutions, 401k advisors should consider whether the terms they’re using might be considered jargon to industry outsiders and focus on simplifying language whenever possible.
“Also make sure you’re reaching your audience where they are—whether that’s by email, on your website or somewhere else …using the platform your readers prefer is a key step in helping them act on the information they need.”