Motivating Your Participants: Leverage Their Peers, Not Fees
Plan Sponsors are always looking for ways to encourage particular behavior in order to improve participation and savings rates in their plan. They have in-plan motivators such as match for employee contributions, auto-enrollment and education programs.
A Vanguard study by Rebecca Katz, The Science behind Meaningful Measurement, found that it was not only the effort of participant communication that changed participant savings behavior, but how the messages were communicated with their participants.
In this Vanguard study, three types of participant messaging were presented to the test subjects:
1. Fear-based
2. Neutral Tone and
3. Peer-based
Out of these, my guess was that the fear-based messaging was going to work the best in changing participant behavior, but I was wrong. In fact, according to Vanguard, “The fear-based messaging…nearly brought one of the subjects to tears”. The peer-based messages such as “the majority of your peers are saving more” was the most effective in changing participant behavior.
The Plan Sponsor should be aware of the messages, however subliminal, that may be coming from your company. To potentially increase savings rates and the confidence in your employee’s financial health, make sure your company message is on par with a positive message that uses peer-based messaging.
It might be easier to tell your participants if they don’t shape up, they may not retire on their ideal timeline, but a better approach may be to come to them with a story or two. Remember a few stories of people you have talked to over the years, people who may have been confused and had questions, or people who didn’t have a plan as to what to do about their retirement.
Pick a few of these stories that meet some of your common demographics and relate the struggles and triumphs of starting or bettering their savings program. You can encourage a change in behavior by saying, “Your colleagues are saving an average of 6%,” or “We find most people need to save 10%-15% of their pay to be comfortable in retirement.” These are concrete numbers that they can apply to themselves and the way it was conveyed makes them feel as if they want to belong to the group.
Changing your participant’s savings behavior is not an easy task, however, using peer-based messaging and simple goals could make your current programs more effective.