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Defined Contribution

Changing plan communication phrasing can boost DC participation — NAGDCA conference speaker

Defined contribution executives can see greater participation when they alter words and phrases to describe plan benefits, Gary DeMoss, director of Invesco (IVZ) Consulting, told attendees Tuesday at the annual conference of the National Association of Government Defined Contribution Administrators.

"Words matter," said Mr. DeMoss in a keynote speech at the annual conference in Philadelphia. "It's not what you say that matters. It's what people hear."

Mr. DeMoss peppered his presentation with examples of focus group responses to different ways of explaining plan benefits. He noted that modest changes in language can produce significant changes in participants' receptivity to plan design features and design.

"Make it all about 'you,'" said Mr. DeMoss, encouraging plan executives to emphasize the personal rather than the generic in their communication and education efforts. "Provide a positive hopeful message."

He cautioned executives against education messages that compare individuals' retirement readiness and savings vs. those of their peers. "They hate when they are compared to their peers," said Mr. DeMoss, describing results of the research. "We crush their investment spirit."

Common industry jargon can be confusing or off-putting to participants, he added. Take the word "glidepath," for example. When a focus group was asked the best description of a target-date fund's strategy that reduced risk over time, only 4% mentioned "glidepath," while 43% cited "risk-reduction path." Another 39% cited "rebalancing strategy" and 14% mentioned "growth path."

When asked to describe a glidepath strategy as being more conservative or less aggressive over time, a majority chose the former because they focused on the word "more" rather than "less," he said.

Mr. DeMoss said the word "fees" can upset participants who already grit their teeth when they pay dealer preparation fees to automobile dealers, baggage fees to airlines and convenience fees to online ticket sellers.

"When we use the word 'fees,' people respond negatively," said Mr. DeMoss. "It has a great emotional impact."

When focus group members were asked what they least like to pay as an investor, 53% cited fees, 26% mentioned others, 15% referenced charges and 6% cited costs.

But executives can use "fees" to their advantage if they adjust their communications, he said.

When focus group members were asked what they would like to hear from an employer about why plan size was important, 35% cited the statement: "We're able to offer access to institutional investments that would be difficult to obtain as an individual investor." However, 65% responded to the statement: "We're able to negotiate lower fees, so more of the money you contribute goes to generating returns."

Mr. DeMoss added that at one focus group session, one person, inquiring about institutional investments, asked if the investment provider had been in prison.

He said education and communication materials should emphasize plausible, credible benefits vs. unrealistic claims.

Participants recognize that sponsors "are never going to give me my dream retirement," said Mr. DeMoss, offering focus group results to back up his comments.

When people were asked their top priority for retirement, 59% said comfortable retirement, 29% said "maintain my current lifestyle" and 12% cited dream retirement.