Further, members are usually ill-equipped to select a realistic assumed long-term return on their investment: they often select a return that is unrealistically high and/or independent of actual investment choices. Add the emergence of investment options such as target date and target risk funds, and it may be too confusing.
The next iteration of DC tools focuses members on investment mix decisions and/or risk tolerance levels. By taking advantage of advanced calculation engines—previously available only to DB plan sponsors—these tools provide a realistic range of expected retirement income levels without asking the member for a rate of return assumption. By providing a range of potential outcomes, members will not be misled into believing there is a specific, known benefit level. This approach helps members to better understand the concept of risk and how it relates to their investment decisions.
Game changers
We’re always looking for the next advancement in technology. A great example is leading research by Stanford University into the Proteus effect, where the behaviour of an individual operating under an online persona adapts to that persona. The results so far have been amazing and should be of particular interest to plan sponsors hoping to encourage greater retirement savings among younger employees.
In one study, young people who saw their older avatars reported that they would save two times as much as those who didn’t. In another, students averaging 21 years of age saw avatars of themselves that smiled when they saved more and frowned when they saved less. Those whose avatars were morphed to retirement age reported that they would save 30% more, on average, than those whose avatars weren’t aged.
Imagine the potential of logging in to a retirement planning tool and being greeted by a futuristic older version of yourself—a self whose general appearance and state of well-being reflects your readiness for retirement. That’s got to motivate you to make appropriate changes to your savings strategy.
Plan sponsors will also need to be creative in using technology to engage gen Y and, to some extent, gen X. We can glean some hints on what works best from how other technology is used; for example, the top uses for smart phones include gaming and social networking. We have started to see plan sponsors use game theory to better engage employees in retirement planning by developing actual games and challenges that are fun and interactive while subtly reinforcing retirement planning messages.
On the social networking front, plan sponsors will need to explore ways to change the focus from “individual think” to “group think.” While individual think focuses on the impact of my decisions on me, group think focuses on what others are doing or my role in a collective goal—for example, having a dashboard summary of the decisions that others in my peer group have made or tracking progress toward attaining a group goal and reward, such as dress-down Friday if 75% of employees contribute the maximum to the pension program.
Developing a well-thought-out technology strategy opens up a world of possibilities. Your offering can be built to meet members’ total retirement needs (e.g., access to statements, booklets or links or single sign-on access to other providers), eliminating the need for employees to aggregate data using multiple tools—an inefficient process that can lead to non-participation. Advancements in service delivery allow for integrated portal solutions that optimize the shared service experience and offer convenient access.
If you already have a technology footprint and are currently using tools to support plan members, you may want to revisit how these tools are being used and whether you are making optimal use of available technology. If you don’t, now is an exciting time to start playing. After all, the game hasn’t changed much—although Words with Friends players may disagree.
Nigel Branker is a partner with Morneau Shepell. nbranker@morneaushepell.com
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