This is Part 2 of our 6th annual survey of CAP members.

Read Part 1: Engaging employees

Read Part 3: Managing expectations

Read Part 4: Exploring new communications

Many CAP members aren’t confident that they understand their retirement plans and basic investment concepts. What role can targeted communications strategies play in improving their knowledge?

Sponsors of employee retirement savings plans may be disappointed to learn that this year’s CAP Member Survey shows declining levels of understanding among plan members. While half (51%) of plan participants are considered “very knowledgeable” about their retirement plans and basic investment concepts, large segments still haven’t grasped basic concepts. Such a trend emphasizes the ongoing need for frequent communication and persistent member education.

Most plan members say they receive communications of any kind regarding their employee retirement savings plan once a quarter (37%), twice a year (19%) or once a year (21%). But despite receiving regular communications, the percentage claiming to have an excellent or very good level of understanding of their employee retirement plan has dropped significantly this year to 31%, down from 44% in 2010. Within this group, the degree of understanding has weakened, with the proportion describing their level of knowledge as “excellent” falling to 8%, from 16% in 2010. Meanwhile, the number with a “somewhat good” understanding has jumped to 44% (up eight points), and the percentage at the bottom with a poor understanding has also increased (22%, up four points).

The level of understanding this year is the lowest since the survey started in 2006, notes Karrina Dusablon, national director, education services, with Desjardins Financial Security. “While we could see this as bad news, should we not be asking ourselves if people are becoming more realistic about retirement issues and admitting what they don’t know as the years go by? Are we seeing a dramatic decline because they have a clearer picture of what they don’t know? If that’s the case, then there is a lot of potential for us as an industry to move in there to help and educate them.”

When asked how well they understand basic investment strategies, about 10% fewer members rate their self-knowledge levels as “excellent” or “very good” than did last year. In 2011, only 25% of respondents claimed an “excellent” or “very good” understanding of asset allocation versus 34% in 2010; two-fifths (40%) say their understanding is “somewhat good.” On understanding their own investment risk tolerance, 36% say they have an “excellent” or “very good” understanding (versus 45% in 2010), and 38% claim a “somewhat good” understanding.

Fewer than three in 10 (27%) have an “excellent” or “very good” understanding of the amount they need to contribute to their retirement plan to retire with the amount of money they need (compared with 36% last year), while 40% say they have a “somewhat good” understanding. Only one-third (33%) report an “excellent” or “very good” understanding of their plan statements (down from 43% in 2010) versus 44% with a “somewhat good” understanding.

Considering the low levels of understanding, it’s startling that when plan members were asked what is the one thing regarding their employer-sponsored retirement savings plan that they would most like to understand better or that they don’t currently understand, the majority of plan members (52%) report either “nothing” or “don’t know.”

“I think there is a large disconnect between what members think they know, what they want to know and what they actually know,” says Jennifer Mayrhofer, manager of group retirement savings marketing with Great-West Life. “The level of education and knowledge has declined in every section of the survey, but it is important that sponsors don’t get overwhelmed as they struggle to give members every bit of information they need to know. There is a wealth of information already out there from the recordkeepers—you don’t need to reinvent the wheel. Rather, you need to choose the channel, take the content that’s most relevant, and repeat the message over and over and over again. The more times and the more ways you put it out there, the more people will pick up on it.”

One encouraging discovery in this year’s survey is that a significant proportion (21%) of plan members would turn to their employer first for advice when it comes to their employer-sponsored retirement savings plan. Other common sources include a financial advisor (29%), family (24%) and their bank or financial institution (24%). Again, when members were asked what specific information they would like to have about their DC plan and/or group RRSP, it’s sad to note that nearly half (47%) said “nothing” or “don’t know.” The most common piece of information that members would like to have is performance statistics (13%), followed by investment information, options and strategy (8%), future payouts (6%), growth forecasts/projections (6%) and amount saved (4%).

The percentage of members who say they have a formal, written financial plan (which outlines at what age they will retire and the amount of money they will need to retire by that age) has declined steadily over the years, from 46% in 2007 to 24% in 2011. On the positive side, however, those with written financial plans may now have more realistic expectations. The average planned retirement age for these individuals this year is 62.7 years—about two years older than the age cited last year. And the approximate amount of money they expect to have saved by retirement plummeted from nearly $1.3 million in 2010 to $727,180 this year.

Only one in five (20%) of those in the accumulation phase reports having a written plan, while just 31% of those in the transition phase indicate that they have a plan. This compares with just under half (46%) who are in the retirement phase. However, a higher proportion report having a financial advisor—accumulation phase (42%), transition phase (54%) and retirement phase (42%).

Throughout the survey, the responses reveal considerable differences between various segments based on gender, age, education and income level. For example, male plan members (80%) are more likely than their female counterparts (69%) to indicate that they have an “excellent,” “very good” or “somewhat good” understanding of their employee retirement plan. Three-quarters (75%) of retirement-age members are more likely than younger cohorts to have an “excellent,” “very good” or “somewhat good” understanding of asset allocation. Likewise, those with a university education (75%) are far more likely to have high levels of understanding of this concept than those with less formal education (63%). And members with annual incomes of at least $100,000 (43%) are the most likely to report that they have an “excellent” or “very good” understanding of how much they will need to contribute to their retirement plan.

Shawn Cohen, national DC practice leader with Aon Hewitt, is actually encouraged that more than half of plan members “are getting it.” However, he sees an issue for the industry when the results are broken out into segments.

“Generally, I think it’s good that when you are approaching an older age, you start paying more attention,” he says. “So our message is working, and we have to continue what we are doing. But retirement isn’t top of mind for younger employees, and it is going to be very difficult to change that perspective. Maybe there is a different way to think about educating people about the plan and contributions. The messaging around retirement has to be there, but it can also be about encouraging savings and making more flexible plan designs that allow members to make contributions that can be used for things that are more immediate. Then, as they get older, the retirement message is going to be picked up—and because they’ve started saving, they are ahead of the game.”

Targeting communications to different groups—men and women, younger to older, low income to high income—is very important, agrees Anna Pagliuca, vice-president of customer experience with Standard Life. “By talking to each group in their language, with their concerns attached, you’ll get the message through much easier.”

Action steps

  • Find ways to integrate retirement planning into your organization’s culture.
  • Run your communication and education plan like an advertising campaign, with short, digestible chunks of information repeated over and over again.
  • Keep messages simple, but think outside the box by using channels of communication that you haven’t tried before.
  • Use different strategies for different groups. For example, hold a pizza lunch for younger people, a coffee break in the lunchroom for women or face-to-face meetings for engaged older workers who are willing to attend outside of business hours.
  • Layer each piece of communication with print and electronic components to reach multiple generations.

Get a PDF of the 2011 CAP Member Survey.

Copyright © 2020 Transcontinental Media G.P. This article first appeared in Benefits Canada.

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