The Benefits of 401(k)s: How do You Communicate Them to Your Employees?

Getting employees to participate in a retirement program like a 401(k) is always a concern for plan sponsors. They wonder how best to communicate the plan’s benefits to employees and encourage them to enroll. As it turns out, there’s a significant amount of research on the best ways to communicate with employees about retirement plans. In fact, the consulting firm Invesco produced a white paper earlier this year that outlined several communication guidelines for plan sponsors:

Be positive. If you use language that evokes fear or risk, employees react negatively to it. Rather than the threatening phrase “outliving your money,” the paper suggests more positive language, like “funding a comfortable retirement.”

Be plausible. People are highly skeptical of false claims and promises, particularly after the last market crash. The phrase “financial security” resonates better with them than more inflated language like “financial freedom.”

Be plain. Your employees aren’t impressed by technical jargon. They prefer to understand your retirement plan without learning the technical definitions for investment concepts. So they react more negatively to a phrase like “dollar-cost averaging” but feel more positive about “regular monthly investments.”

Be personal. There’s an acronym used by marketers when selling products and services: WIIFM? It stands for “What’s in it for me?” In other words, you need to tell your audience exactly what benefit they’ll personally be getting. So instead of a “target date fund,” employees prefer to hear about a strategy that adjusts for them as their individual needs change.

Benefits over Consequences

In general, employees want to know what they stand to gain from participating in your plan, rather than hearing fear-based messages about running out of money in retirement. Understanding employee psychology is the basis for The Participant Effect^SM, a unique program that relies upon behavioral finance to analyze why employees don’t always make the best decisions and provides steps you can take to make your retirement plan more effective. For more information, browse the rest of the website, or call 866-625-4611.

Tracking Number: 1-410748

This information was developed as a general guide to educate plan sponsors but is not intended as authoritative guidance or tax or legal advice. Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation. In no way does advisor assure that, by using the information provided, the plan sponsor will be in compliance with ERISA regulations.