High Impact Tips for 401(k) Plan Sponsors: High-tech or Old School?
My son and I are taking up backpacking. Or, at least at this point in time, we think we are. It has been decades since I have gone, and most of our gear is of the heavier car-camping variety, so we are more or less starting from scratch. However, we just got backpacks, so now we are committed!
One of the fundamental principles of backpacking is to keep your gear light. It used to be that the only way to do this was to leave something behind, but nowadays, high-technology materials offer another means to lightening one’s load. This technology can help you do some really great things, but you can definitely go to extremes, and in some cases you go beyond what is actually necessary or needed for your own situation.
For example, you could spend upwards of a thousand dollars on a backpacking tent made out of the latest, greatest and therefore lightest materials, and then find that because of the places you go and the season during which you camp, you could have just rigged up a homebrew tarp and mosquito net solution for under thirty bucks.
Believe it or not, the same thing applies to technology-heavy areas such as retirement plans. Just because the technology is available and is there, doesn’t mean it’s what everyone in your plan wants or needs. So here are our two tips for the week.
Don’t assume everyone wants, needs, or will use the Internet.
It may seem kind of odd in this day and age, but there are a lot of participants who will not visit your participant web site. Looking across my own clients, the usage rate varies considerably, but is lower than you might think.
How can this be? It mainly comes down to two things, in my opinion. First of all, it is just one more site to visit, one more password to remember, one more account to keep track of. And face it, even the most dazzling retirement plan site is probably not the most thrilling place to visit on the Internet. So participant inertia says that the easiest thing to do is ignore it. And secondly, there are still participants who simply won’t use the Internet.
What does this mean for the plan sponsor? Really, it is very straightforward.
- Online tools are great, but make sure that it is not critical for participants to access them in order to be successful in your retirement plan. You may need to provide an easy way for participants to perform basic plan functions (signing up, changing investment, etc.) without having to go online. You want your participants to be successful so someday they can actually retire. Make it simple for them.
- You may want to set up some in-person education meetings to make sure participants have the tools they need to make informed choices, and to show them what kind of tools are available on the Internet.
- Recognize that all the Internet “bells and whistles” in the world do not make for a successful 401(k) plan, and focusing exclusively on web access can actually hurt your participation and retirement outcomes. A better bet is to focus on your overall messaging and how your participants engage and learn, and ensure that your education, systems, and online tools support your specific situation.
Consider a paper-based enrollment system, in the right context.
With all of the current focus on Internet-based, paperless, mobile-compatible technology, there is a real temptation to think that high-tech web features can solve everything in terms of your participant enrollment and education. That said, we have some clients with very successful plans whose enrollment system is largely paper-based. I have a client with nearly 150 participants, of which only 3 had chosen to receive electronic statements at this writing. Suffice it to say, we can’t depend on the Internet to educate their employees.
Once we say “paper-based” some plan sponsors have visions of reams of piles of forms, bottles of ibuprofen, and rampant deforestation. However, it doesn’t have to be that way. There are several things you can do in making a paper-based system efficient.
- Have in-person group meetings with participants to help them understand how to use the plan. You should be doing this regardless of whether enrollment is electronic or “analog,” but it is worth mentioning here.
- Use automatic plan design features, such as auto-enrollment, automatic contribution escalation, etc.
- Have an “easy” investment option, such as we discussed here. Such investments give participants a one-stop shop based on retirement date or risk tolerance, or both. And they are automatically rebalanced.
What do these approaches accomplish? Simple – the automatic features and easy investment minimize the number of times participants need to access their accounts later on. While not ever a once-and-done task, putting more things on autopilot increases participants’ chances of positive retirement outcomes even if they never visit the web site.
Also, we have found that the in-person meetings combined with the simple messaging really do increase the likelihood that participants will join the plan or continue to participate regardless of the employees’ tech savvy, and might even encourage their use of online tools. In conjunction with a paper-based enrollment system, in-person meetings can work very well for some clients who have less technologically-inclined work forces, and they still offer the web-based tools for those who do want to access the plan in that way.
Technology is great. In the retirement plan context, it eases the employer’s burden and provides a permanent, accessible electronic record. And you need to offer it to your employees in order to be competitive. But just like those of us buying gear, make sure that you are not focusing so much on the technology that you forget the situations in which it will actually be useful. And be prepared to use a “low-tech” solution once in a while!
Questions about your participant experience with your retirement plan? Talk to our experts today!
Keep following us for some more tips in the weeks to come, and our eventual “101 Tips” ebook! You can always find previous posts and tips on our website!
Scott Gehman, ERPA, CEBS
Retirement Plan Consultant