Plan sponsors trying to get participants to engage with their retirement plans might want to consider messages that arouse fear in participants over those that congratulate them on what they've accomplished.
That's according to a study released in July by the Defined Contribution Institutional Investment Association.
The study found that participants are more likely to respond to a message about a projected 29% shortfall in hitting their retirement income goal than to a message about being 71% of the way there.
"Caution!" the fear-based message begins. "Great news!" begins the other.
Of those receiving the cautionary message, 23.8% said they would think about their deferral rates much more often, compared with just 9.8% of participants who received the more positive message. The recipients of the fear-based message were also much more likely to say that they would engage with their plans much more often in multiple other ways, including reviewing their retirement income statements, looking at their investment options and using financial tools and calculators.
"We did see that the messaging that I would call cautionary did generate more intent to engage," said Warren Cormier, the Charlotte, N.C.-based executive director of DCIIA's Retirement Research Center.
That's not to say the "great news" message completely missed the boat. Both messages, in fact, increased intended participant engagement, suggesting that any type of communication — whether cautionary or supportive in tone — is better than no communication at all. The majority of respondents, for instance, indicated that they were likely to engage with their plans "somewhat more often" regardless of which message they received.
"Just the act of communicating at all generated intent to engage," Mr. Cormier said.
The study surveyed more than 1,000 individuals, nearly three-quarters of whom were defined contribution plan participants, in October 2020. Survey respondents were drawn from a commercially available consumer panel.
DCIIA conducted the study to give plan sponsors fundamental guidance as to how best to disclose information to participants, an important area of research given the retirement readiness estimates that the Department of Labor is requiring sponsors to provide, Mr. Cormier said. Under the DOL's interim final rule, which becomes effective Sept. 18, plan sponsors will have to provide participants with illustrations of their projected monthly lifetime retirement income at least once a year.
"The defined contribution industry takes communication with their participants very seriously," Mr. Cormier said.
In designing the study, a team of DCIIA members debated which approach would be more effective, with half leaning toward positive messaging as the winning strategy, and the other half — among them, Mr. Cormier — anticipating cautionary messaging as the winner.
Mr. Cormier felt that cautionary framing would help participants avoid regret or engage in what's referred to in behavioral science as "regret aversion."
"People tend to dislike a loss more than they like a gain of equal proportion," he said. "They're psychologically more affected by a loss of $100 vs. a gain of $100."