Targeted Communications Boost 401(k) Participation and Savings

By Stephen Miller, CEBS May 19, 2011

Employee education and engagement efforts had a positive impact on four critical factors that help workers save for retirement: participation, savings level, asset allocation and making wise financial decisions during key milestones, such as when changing jobs or retiring, research by Fidelity Investments, a 401(k) provider, shows.

“One of the best predictors of an employee’s future retirement savings is his or her engagement level in the planning process,” said Carolyn Clancy, executive vice president at Fidelity. Employee education can combat inertia and increase the level of engagement "by communicating to participants during key life events very simple yet actionable ways to help them improve their retirement readiness.”

Engagement Efforts

Savings deferral rates improved significantly when employers provided participants with customized messages during various life stages that often trigger financial decisions, including when starting a job, hitting a certain milestone age, nearing retirement and separating from an employer, Fidelity found. The largest impact resulted from educational communications programs that went beyond providing interactive web-based tools to include an integrated mix of phone calls, e-mails, workshops, one-on-one consultations and direct mail, "all delivered or offered more frequently at key life events to help ensure participants are armed with the customized information they need to take action," Clancy said.

Measurable Impact

Fidelity's analysis of plans that adopted an employee education program from March 2009 through September 2010 revealed positive participant behavior changes, including:

  • Increased enrollment. Plans using engagement programs were nearly twice as likely to increase enrollment rates compared to those plans not adopting them during the same time period (54 percent vs. 27 percent, respectively).
  • Higher deferral rates. Participants in plans that leverage educational communications just after enrollment were six times as likely to increase their deferral rate over participants in plans that did not use the programs (12 percent increased deferrals vs. 2 percent, respectively).
  • Improved asset allocation.Plans that helped participants proactively with asset allocation were significantly more likely to improve age-based asset allocation across their participant population as compared to plans that didn’t provide the education (85 percent vs. 51 percent, respectively).
  • Fewer cash-out. More than half (51 percent) of plans that reached out to departing employees with distribution options such as staying in the plan or rolling over to an individual retirement account (IRA) decreased the number of participants cashing out. The average cash-out rate for those plans decreased by 2 percentage points, while the rate for plans not using the programs increased by 5 percentage points.

“The results are clear,” said Clancy. “Engaging participants over the long term can dramatically increase healthy financial behaviors and the chances to achieve a more successful retirement.” However, "plan sponsors have different goals for employee education," she added, so "plan sponsors should customize programs that meet the needs of their specific participant populations."

Fidelity: Average 401(k) Balance Hit All-Time High

The average 401(k) plan balance rose to $74,900 at the end of the first quarter of 2011 in 401(k) plans managed by Fidelity Investments, marking an all-time high since the financial services firm began tracking account balances in 1998. This was a nearly 12 percent increase in the average plan balance from a year earlier and a 58 percent jump from the same time period in 2009 (after the stock market plunged in the wake of the 2008-09 financial crisis).

Nearly one in 10 401(k) participants increased his or her deferral rate during the first quarter of 2011, the largest percentage taking such action since Fidelity started tracking the figure in 2006.

Stephen Miller, CEBS, is an online editor/manager for SHRM.

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