Defined contribution plans are most successful when participants understand their choices and are empowered to take action. As a plan sponsor, you must transform complexity into simplicity, and fear into action. Yet, you are faced with many communications challenges; because participants crave simplicity but defined contribution plans are inherently complex.
Though communication can be difficult, the benefits offered by a successful communication program outweigh the challenges.
What to Communicate
Elements that should be included in your communications materials include:
- Saving for Retirement – make sure your participants understand the context of their defined contribution plan; will they also receive a defined benefit and/or Social Security? Make sure they also understand that the amount they contribute and the amount of time that they contribute could have more of an impact than how they invest.
- Tax Deferral v. Tax Free Accumulation – make sure members know the difference between Roth and non-Roth plans and can make the best decision about how to save their money. Plan participants should also be aware of the Saver’s Credit tax credit for eligible contributions to an IRA or employer-sponsored retirement plan.
- Contribution Limits – make sure your participants understand their contribution limits.
- Don’t Miss the Match – plan participants need to be made aware of employer matching contributions.
- Investments and Investment Concepts – individuals may experience some anxiety around defined contribution plans because they don’t feel they have the information to make good investment decisions; plan sponsors should communicate that the essential principles of investing are not that complicated. Participants should maintain a diversified portfolio matched to his or her risk tolerance and investment time horizon; the asset allocation strategy can also be modified over time as their situation changes.
- Fees and Expenses – fee disclosure is a challenging responsibility, but it is best practice to disclose all fees clearly and regularly.
- Access to Your Account While Working – clear and straightforward language should be used to help participants understand the pros and cons of loans and hardship withdrawals.
- Distribution Phase – as a best practice, resources should be developed to help participants understand the options in the plan for converting savings into lifetime income.
- Beneficiaries – participants should not just designate beneficiaries at the time they enroll, but should also be reminded to keep this information updated.
- Additional Important Communication Topics – Annual Updates and Regulatory Changes, and Summary Plan Description
How to Communicate
In developing your communications program you should explore all potential communication methods:
- One-on-one Counseling
- Websites and Web-Based Information Tools
- Call Centers
- Quarterly Statements & Newsletters
- Group Education
- Social Media
An important part of any communications strategy is measuring its success so you can make changes as necessary. Two methods work well for measuring success: you can test participant behavior and see if any behaviors changed in response to the communications strategy employed or survey plan participants to determine if they are receiving and understanding the information targeted at them.
Plan sponsors should be continuously assessing and questioning their communication objectives, strategies, and outcomes. By doing so, you will know you’re doing your part to help participants navigate the complexity of the retirement world, and ultimately to build the brightest futures they can imagine.
For more information regarding Communication and Education, and other Best Practices, check out NAGDCA's Best Practices Guide at NAGDCA.org.