Plan Design Enhancements Can Confuse Instead of Engage Employees
Question: Our company has made a commitment to innovations around plan design - auto enrollment, auto escalation, introducing managed accounts, etc. We are always trying to stay ahead of the curve with investment options and plan design, but our employees are becoming more and more confused instead of engaged.
What can we do on the education side to positively impact employees with changes?
The efforts you are putting into improving your plan may be bumping into three major obstacles: skepticism of financial institutions, the diminishing return of too many choices, and a discomfort with change, especially if you have had to make changes that weren't positive such as passing health care cost increases on to employees or delaying raises. Here are some things to consider:
Adding additional options doesn't necessarily provide results. Barry Schwartz, the author of The Paradox of Choice, talks about how our western culture is deeply embedded in the notion that having more freedom-by way of having more choices-is the best way to "maximize welfare," but more choice actually creates confusion, and employees may end up delaying decisions or avoiding them all together. This has a direct impact on 401k plans, namely that more investment choices have been found to actually decrease participation-the opposite of what employers are looking for. A research study by Sheena Iyengar, Wei Jiang, and Gur Huberman, in partnership with Vanguard Investments, found that for every 10 investment choices offered to employees, plan participation went down about 2%. In effect, employees may be simply throwing their hands up when provided with too many choices.
Case study on increasing plan participation during an acquisition.
Study on 401k fund choices and plan participation.
Barry Swartz, The Paradox of Choice.
About Financial Finesse
Financial Finesse was founded with a single mission: Provide people with the information they need to become financially independent and secure. Today, we are the leading provider of unbiased financial education for large companies and municipalities. Our financial education services are fully integrated programs designed to address the strategic goals of the organizations we service and are delivered by on-staff Certified Financial Planner™ professionals as an employee benefit. If you are interested in learning more about workplace financial education programs, contact one of our education consultants at AskFF@financialfinesse.com.
The Ask Financial Finesse Q&A service is designed to provide general information on trends and developments in workplace financial education programs and participant education strategies. Due to the complex nature of financial benefits and/or workplace financial issues, the information contained in this document is not to be construed as advice.
401khelpcenter.com is not affiliated with the author of this article nor responsible for its content. The opinions expressed here are those of the author and do not necessarily reflect the positions of 401khelpcenter.com.
| Contact Us