As increasing rates of millennials sign up for their company 401(k) plans, either voluntarily or automatically, many are trying to educate themselves – perhaps for the first time- about retirement and investment terminology. While being “in the know” is key to making responsible and intelligent investment decisions, research shows that this fundamental component is often just what is missing.
A recent whitepaper from Dream Forward studied the types of questions that plan participants asked the artificial intelligence chatbot and found that most questions revolved around the basics of 401(k) plans and financial jargon. Similarly, a study from the Empower Institute offered a list of commonly-used terms in retirement plans that have completely different uses in everyday language. It’s easy to see how confusion can ensue fairly quickly:
- Rollover – a trick you teach your dog?
- Match – sports, right? Wimbledon?
- Rebalance – I lost my footing?
- Vehicle – I prefer public transport!
In all, the overwhelming message in both of these studies is that there’s a large disconnect between the way 401(k) plans are designed and the average American’s familiarity with financial terminology.
Millennials are called out here because this generation, in particular, was shown to have difficulties understanding several financial terms. While 44 percent of total respondents found the term “plan participant” unclear, this number was much higher with the ‘avocado toast–eating’ generation, at 63 percent. What’s more, 88 percent of millennials were hazy on the term “defined contribution retirement plan.” This is only slightly worse than the 76 percent of respondents overall who weren’t sure themselves!
Bottom line? If millennials can’t understand it, it’s likely that the rest of your audience is somewhere close by. So, what’s a plan sponsor to do?
Preferred word choice:
Consider if your chosen language might be considered jargon to industry outsiders. Adding just a word or two might greatly improve understanding.
- The Empower Institute recommends “employer match” instead of just “match,” “retirement savings and investments” instead of “assets” and “professional account management” instead of “managed account.”
- “Employee” and “participant” were the two most commonly preferred terms, at 19 percent each in Empower Institute’s study.
- “Employer match” (32 percent) and “company match” (21 percent) were preferred terms for the amount an employer puts into a retirement account based on the amount an employee saves.
- Forty-three percent preferred the term “contribution rate” for the percent of their paycheck they put into a retirement plan. “Deferral rate” was less popular at 9 percent.
However, it’s not just word choice that tripped up some participants. Studies show that employees are looking for higher quality retirement communications overall. Here are some more recommendations on how to ensure you are getting through to all segments of your population:
- Keep communication concise, simple and engaging.
- Aspire for messages that are targeted and relatable instead of generic.
- Aim to create attention-grabbing messages that are participant-centered to avoid overwhelming people with unnecessary and potentially confusing information.
- Choose the right delivery method. Personal emails were the most popular method for receiving retirement plan messages. A postcard sent separately from an account statement, text message by phone, live messaging online and a social media page visit were the least preferred communication methods.
- Emulate the best. There are many examples of innovative, creative and highly effective plans that can serve as models. For example, every year the Plan Sponsor Council of America (PSCA) recognizes superstars of the retirement industry.
While it can seem disheartening that some retirement plan communications miss the mark, with a few simple adjustments, your communications can accomplish what they should – empower, encourage and inform participants to put them on a path to financial security. (Even the millennials!)