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Defined contribution

Words matter when talking to participants, experts say

"Cut the jargon."

"Use more comforting words."

"Be sensitive to emotions."

"Empathize with participants."

"Keep it simple."

These brief phrases were a constant refrain at the annual conference of the National Association of Government Defined Contribution Administrators held in Philadelphia Sept. 23-26 during which speakers said sponsors must do more than adopt best practices in plan design and create a diversified investment lineup.

They must be more persuasive in describing the value of saving for retirement.

"Words matter," said Gary DeMoss, director of Invesco (IVZ) Consulting, in a keynote address on Sept. 25.

Sponsors must personalize their messages about plan design and benefits, moving away from a generic discussion. "Make it all about 'you,' '' he said. "Provide a positive, hopeful message."

The hopeful message, however, shouldn't sugarcoat potential challenges or make unrealistic claims, he said. Instead, sponsors should emphasize plausible, credible benefits of saving for retirement.

Participants recognize that sponsors "are never going to give me my dream retirement," said Mr. DeMoss, describing focus group results to support 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."

Hopeful yet realistic messages from sponsors to participants not only requires a better language but also empathy because participants' emotions affect their decisions, said Punam Keller, deputy dean and the Charles Henry Jones Third Century Professor of Management at the Tuck School of Management at Dartmouth College.

Plan executives must think about participants' feelings, "not just make things easier" for them to contribute and invest to retirement plans, Ms. Keller said in her Sept. 26 keynote speech.

To be a good marketer, "you need to be a good listener," she said, referring to plan executives' efforts to communicate to participants about plan benefits. "To be a good listener, you need empathy."

This approach is necessary to make the various "nudges" — such as auto features and opt-out vs. opt-in strategies — more effective, Ms. Keller said.

Current nudges "do not manage emotions," she said. These nudges "are all focused on feasibility — not desirability."

Sponsors can appeal to participants' emotions when they communicate the benefits of joining a retirement plan and/or increasing contributions, she said.

Ms. Keller advocated giving participants "enhanced active choice," which adds more description to a simple yes-no question. In her hypothetical example, sponsors can give employees two choices in deciding if they wish to participate in a DC plan. One choice: "Yes, I want to enroll in the firm's 401(k) plan to ensure that I will enjoy a comfortable lifestyle for the rest of my life even after I stop working." The other choice: "No, I don't want to enroll in the firm's 401(k) plan even if this step will help me avoid a poorer lifestyle, knowing some day I will have to stop working."

This strategy motivates participants to minimize what psychologists call "anticipatory regret," or a person's feeling of negative consequences of a decision before he or she actually makes it. Ms. Keller said the use of "enhanced active choice" can lower the barrier to "going forward" rather than "doing nothing."

Effective communication

Sponsors on the front lines offered suggestions on how to more effectively communicate their plans' features. "Folks want it simpler," said Cindy Rehmeier, manager of defined contribution plans for the Missouri State Employees' Retirement System, Jefferson City, overseeing $2.2 billion in assets.

To that end, MOSERS cut the size of its plan overview document to two pages from eight pages, she said during a Tuesday panel discussion on generational education and communication.

Also on the panel was Hyun Swanson, manager of benefits education for the University of California's Office of the President, who said participant communications has changed over the years for a faculty and staff DC plan that has 300,000 participants.

Gone is the message "Do You Have Enough?" and the pictures of happy seniors on a beach. This year, the university's effort includes emailing communications to participants — in part to encourage greater participation among millennials — that asks them what are the little things they can do today to have a better tomorrow. "Millennials are the hardest to reach," she said.

Impactful words

Effective language — removing jargon — makes participants more comfortable with products and services, several speakers said.

When Mr. DeMoss asked a focus group to best describe a target date fund's strategy over time, only 4% mentioned "glide path." The popular answers were "risk-reduction path" (43%), "rebalancing strategy" (39%) and "growth path" (14%).

And when asked how to describe why investments are important, 51% of participants used the words "cost efficient" and 38% cited "high value." In last place with 11% was "low cost." That's no surprise, Mr. DeMoss said, because participants equated "low cost" with "cheap."

And don't use the word "fees," except when touting your plan's ability to reduce them, he said.

When focus group members were asked what they would like to hear from an employer about why plan asset 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."

The key word here is "fees," Mr. DeMoss said, noting that this approach enables sponsors to use a hated word to their advantage. "When we use the word 'fees,' people respond negatively," he said. "It has a great emotional impact."