PLANSPONSOR - August/September 2021 - 13

Encourage or Caution-Which Works Best?
IN A STUDY, the Defined Contribution
Institutional Investment Association
(DCIIA) Retirement Research Center
contends that, compared with traditional
metrics of defined contribution (DC)
plan success, " a better measure ... is how
effective the plan is at driving participants
to become more engaged with it or,
better still, to act on behalf of their own
retirement. "
The researchers set out to determine
how plans-and plan sponsors-can
improve engagement and action, by seeing
how employees responded to a message of
encouragement or fear. Survey respondents
answered seven questions, each
pertaining to taking a particular action
step with their plan's sponsor or recordkeeper
to help build their retirement
TIDBITS
Evaluating PEPs
What should current plan sponsors do when a pooled employer plan (PEP) is
pitched to them as an alternative to what they offer? PLANSPONSOR asked Rich
Rausser, senior vice president, client services, at Pentegra.
See if the PEP has
some scale. There's
an audit exemption
for PEPs that have no
more than 1,000
participants and
participating
employers with
no more than 100
participants. " My
thinking is that PEPs
smaller than that
audit threshold
won't have the scale
they need to operate
cost efficiently. "
Evaluate the design
options. Some
PEPs significantly
limit these to keep
things simple and
cost effective.
Other PEPs offer
more. This goes to
the cost of providing
services. In general,
utilizing a PEP
provider with design
flexibility will be
more expensive for
both the employer
and the employee.
Does the pooled
plan provider (PPP)
have experience?
Around 100 PEPs
have been established
to date, and
many PPPs are new
to the fiduciary side
of the business.
" Providers may have
the knowledge of
administering plans,
but many lack experience
in effectively
discharging fiduciary
duties. "
savings. Then they received either an
encouraging message citing their progress
toward funding their retirement or a
cautionary message warning of a savings
shortfall-that they had met 71% of their
goal or would miss it by 29%, respectively.
Respondents then answered the
same questions again. Those who had
not already indicated they would engage
on any of the seven steps could " upgrade "
their engagement intentions.
Other studies and anecdotal evidence
suggest that communications creating
too much fear can have a negative effect.
Messages in which retirement calculators
estimate daunting shortfalls to one's
savings goal can discourage the recipient
from doing anything, as the goal seems
unattainable.
In the DCIIA study, 23.8% of participants
who were cautioned vs. 9.8% who
were encouraged said they would think
about the percentage of pay they contribute
to their retirement account " much more
often. " Thirteen percent who were
cautioned, vs. 11% who were encouraged,
indicated they would speak with a financial
professional " much more often. " Nearly
one-quarter (24.1%) of the cautioned
participants said they would review their
plan's investment options to determine
whether making changes would make
sense, vs. 16.2% of the encouraged group.
The researchers concluded that giving
guidance on retirement readiness appears
to improve engagement, and applying a
certain amount of fear seems to work best
to engage the unengaged. -Rebecca Moore
Include PEPs
when performing
regular requests
for proposals
and requests for
information, or
when otherwise
benchmarking
service providers.
" When evaluating
a PEP, look and
learn, but only
leap into it if it's the
best solution for the
participants and
you, the sponsor. "
PLANSPONSOR.COM August - September 2021 13
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