3 Behavioral Tips that May Help Employees Save for Retirement

One of the most important things a plan sponsor can do to help employees save for retirement is to build better habits. The key is to design a program that helps make it easy for employees to make better decisions regarding their retirement.

A few behavioral tips include:

1) Making it Automatic

The potential benefits of automatically enrolling participants and automatically escalating participant deferrals are well-documented. Participants tend to take the path of least resistance and view plan defaults as being at least implicitly endorsed by the plan sponsor.

Defaults are an important consideration in any type of “auto” arrangement. Many plans that were early adopters of automatic enrollment selected deferral defaults that were too small, with 3% being very common. Moving beyond the standard 3% default deferral rate to a more impactful savings rate is paramount in making auto programs truly more successful and allowing participants to better save for retirement. The key is setting a default savings rate that is both meaningful and likely to be adopted by participants, and for the vast majority of Defined Contribution (DC) plans, this number is typically around 6% or higher.

2) Moving the Carrot

People tend to like free stuff, especially free money. That’s why many participants will save up to the employer match and no more. For companies that are unable to increase the dollar amount allocated to making matching contributions, it may make sense to change the match schedule. For example, instead of matching 100% on the first 3% of employee deferrals, match 50% on the first 6%, or even 25% on the first 12%. These lower match schedules often do a better job getting employees to “share the load” when it comes to funding retirement.

The optimal match schedule is likely different for each company and therefore will vary by plan sponsor. These relatively small changes, though, can have a big impact on a participant’s ability to save for retirement.

3) Leveraging Annual Enrollment

Health insurance coverage is not a “one and done” decision like DC plans. Instead, each employee must go in once a year and either re-confirm existing coverage or select new health coverage.

Plan sponsors may want to consider leveraging the well-worn path of annual enrollment, by making retirement decisions an additional consideration during the process. Something as simple as telling each employee, that those who are not enrolled in the plan will be re-enrolled at the default savings rate each year, may help scoop up employees who either decided not join the plan initially or have since opted out.

These small behavioral tips could potentially yield very powerful results for plan participants. What similar tactics are you implementing to help your employees save for retirement?


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David is currently the head of retirement research for Morningstar Investment Management LLC.  In this role, he works to enhance the group’s consulting and investment services and serves as the chair of the Advice Methodologies and Automated Strategies subcommittee, which is the working group responsible for developing and maintaining all methodologies relating to wealth forecasting, general financial planning, automated investment selection, and portfolio assignment for Morningstar Investment Management LLC. He does research primarily in the areas of financial planning, tax planning, annuities, and retirement. His research has been published in a variety of industry and academic journals and has received a number of awards. He is a frequent speaker at industry conferences and is regularly quoted in the national media.  When David isn’t working, he’s probably either out for a jog or playing with his two kids.

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