Get your DC plan members to join the party

As DC plans are now prevalent in Canada and the industry has matured, it’s becoming clear that “informed decision-making” is hard to sustain. According to a wide range of research, including Benefits Canada’s annual Survey of Capital Accumulation Plan Members, only half of DC plan members pay sufficient attention to the plan over the long haul and are adequately equipped to grow that nice lump sum. Of the other half, many sign up and then rarely revisit their participation level or investment choices. And, when membership is voluntary, significant numbers of employees fail to join the DC plan at all.

So how can plan sponsors get employees to come to the DC party—especially when their twentysomethings and sixty-somethings have very different ideas about what kind of party they want to attend? Two courses of action are unfolding for plan sponsors.

First, sponsors need to dramatically overhaul communication and education of the DC plan to showcase its appeal and value to diverse employee groups. Second, they need to add plan design features that fill the gaps (which less-engaged employees create for themselves) by mandating membership and contribution levels and selecting a default investment choice that will protect non-engaged employees from the negative consequences of neglecting their plan. Of course, these actions are not mutually exclusive: ensuring that members and eligible employees understand and value their workplace DC plan while adding automatic features as a safety net will extend the plan sponsor’s ability to effectively achieve long-term objectives on behalf of the broadest possible group of employees.

What does this mean to Brandon?
Brandon—in his early 20s and part of generation Y—was recently hired by XYZ Company. Giddy at the prospect of regular paycheques, Brandon decides to buy himself a smart phone. He spends days preparing for his purchasing decision: he talks to friends, asking them about their phone packages to determine which features he wants; confirms pricing details on vendor websites; compares smart phones on consumer review blogs; considers which smart phone has the biggest “cool factor”; and posts his decision on Facebook so that his friends can comment. By the time he heads to the store, he knows exactly what he’s going to buy. That’s a successful sale with a happy purchaser who made a lot of informed decisions based on three factors: the product’s specific advantages; the buzz about the product; and how the product fits into his life.

DC plan advantages – DC communication and education could start by taking a leaf from the consumer playbook and pitching the plan as a valuable and appealing product. Usually, the DC plan is introduced quickly to new hires among the many other benefits discussed on Day 1, with a focus on completing the enrollment process and moving on to the next task. A consumer approach would pitch the DC plan as something that employees would rush to buy because it has such desirable features—particularly the free money.

Shine a light on the size of the lump sum that the DC plan can eventually generate. Show new employees how they can achieve a significant level of savings by taking advantage of the company’s financial support and carefully monitored investment selections. Stress that low investment management fees are a very desirable feature, making the plan less expensive over the long term and leaving more money to grow. Use testimonials, particularly with younger employees, to whip up some peer pressure: “Wow! Give me one of those DC plans!”

Money appeals to all employees, regardless of age or demographic. Under-standing how money matters to each demographic is the most important clue to increasing engagement in DC plans.

Shine a light on the size of the lump sum that the DC plan can eventually generate.

Of course, any consumer message would have to link this potential windfall to the corresponding effort required to manage the plan and make good decisions. The message about the risks and consequences of not paying attention has to be crystal clear.

Auto features—such as mandatory or automatic enrollment with an opt-out option; mandatory employee contributions or contributions that automatically increase with service; and target date retirement funds or other types of ready-made investment solutions—can be another feature of your DC plan. If employees and plan members won’t become active participants on their own—due to lack of knowledge, fear of investment losses, apathy or procrastination—you can broadcast how the DC plan will help them to grow that lump sum without the need for too much of their time and effort. Those messages make it easy for younger employees who lack financial expertise to get started and also help older employees overcome their barriers to investing and feel more comfortable that their money is in good hands.

Creating the buzz – As advertising experts tell us, successful selling is all about buzz. You take a product, create a need for it and keep that need in front of customers for the life of the product.

DC plan communication is short on buzz. Much of it focuses heavily on content and includes a lot of technical detail. Plan communication tends to be rolled out at career events—during orientation and enrollment, termination and retirement—with a lot of radio silence from the plan sponsor in between. Yet much of this material is clearly helpful to employees and is required for compliance with the CAP Guidelines.

For employees to participate actively and make their own decisions, the plan sponsor will have to keep relaunching the workplace plan. Like any ongoing marketing or advertising campaign, this requires a sustained and consistent strategy that is fresh, fun and meaningful and that includes the right media and messages for different demographic groups.

There’s no perfect formula here: just as each advertiser designs a campaign based on the unique product and target audience so will each DC plan sponsor create appeal based on what it knows about its employees and what works best according to the organization’s internal communication practices.

Why it’s right for me – A successful consumer campaign starts with market research: a thorough understanding of the target audience, based on facts, figures, needs, attitudes and preferences.

First, look at the numbers and assess where the DC plan is falling short of its intended goals for maximizing the benefit and levels of participation. Plan sponsors can find answers to a number of other questions, too. Are new hires failing to join? Which groups demonstrate low contribution levels? By age or by expected length of time to retirement, are any groups investing too conservatively or too aggressively? What’s the rate of return dispersion within each age group?

If the DC plan offers both do-it-yourself investments and ready-made portfolios, the plan sponsor can determine if those who create their own portfolios are doing better or worse than those using the ready-made ones. If the DC plan recently introduced target date funds or made other changes to investment options, what was the uptake, and among which groups of employees?

Critical to any demographic-based approach is qualitative research, which probes the demographic and behavioural bases of employees’ attitudes, learning styles, and real-life financial concerns and behaviours. Knowing what members and eligible non-members think, know and want—about money, education, media and financial issues, as well as the barriers and challenges to making the most of their DC plan—is the basis for designing an education program that
will address the needs of different demographic groups.

Back to Brandon
|When it comes to money, gen Y (your workforce up to about age 28) is still getting used to having a regular income. Top of mind, from a personal finance perspective, is the price of gas, paying down student loans, making rent, finding the best deal on a smart phone and getting no-fee chequing. Saving just isn’t a priority.

According to the 2010 Demand-based Investor Education Study conducted for the Investor Education Fund, young people draw on a surprisingly wide range of sources for financial information. Employees under age 35 (gen Y and the younger gen X-ers) use an average of four to five information sources, while those over 35 tend to use only two to three sources. And the types of sources differ dramatically: internet search is used by 90% of under-35s, who find financial sites via search engines, while only 40% of over-35s cite this source. Also, 70% of under-35s talk to their friends, family and co-workers for financial information, while only 33% of over-35s do so. Blogs and online forums are accessed by 48% of under-35s and only 6% of over-35s. However, over-35s are much more likely to use financial advisors than those under age 35, at 71% and 36%, respectively. As for reading big kits full of brochures? Not so much.

To create buzz, position the DC plan as a way to get free money and start saving in concert with the other financial elements that younger employees are trying to master, such as loan repayments, tax-free savings accounts (TFSAs), tax rebates and banking. The plan as a retirement benefit won’t be a major factor in loyalty to the organization at this stage of life. And, as with any other product, the sizzle has to work: generation Y will definitely not be attracted to the company DC plan if it’s pitched with images of a sweet grey-haired couple in Muskoka chairs.

Meet Sean
Sean has been with XYZ Company for a few years now. He belongs to generation X, whose members range in age from about 29 to 46. Gen X-ers are moving along in their careers, and many have families. They are not necessarily thinking about their future retirement needs. Sean is making more money than ever, but it’s all being spent, and he doesn’t have much disposable income for saving.

Gen X-ers are often focused on managing the mortgage or tracking house prices, paying down credit cards, worrying about their credit rating, deciding whether to lease or buy that new car and supporting a growing family. If there is disposable income, saving is in full swing through RRSPs, TFSAs and registered education savings plans.

Employees of all ages increasingly use online sites and tools for financial information and planning support. However, Sean and his generation use fewer sources and are turning more toward bank representatives and financial advisors.

The DC plan will appeal to Sean if it is positioned as another element in his growing financial tool kit. Show generation X how the DC plan is a star candidate in the competition for some of the family’s disposable income, especially with its fee advantages. Sean should also understand that his benefits will grow the longer he stays with the company, so show him how much wealth he might accumulate over time.

Here’s Karen
The baby boomer demographic includes employees from about their mid-40s, who may be locking in their careers, to those just reaching the traditional retirement age of 65. Boomers are generally at the peak of their earning years but still have many expenses.

What’s top of mind for boomers? Saving for retirement (and possibly worrying about not having enough), getting closer to being mortgage-free, paying kids’ university tuition and thinking hard about what kind of lifestyle they want in the years ahead. Many will be growing nest eggs from personal savings.

For boomers like Karen, the DC plan will play a big part in any decision to leave the organization or stay until retirement, as well as when to start retirement. Indeed, the emerging issue for this generation is the radical revision of the concept of retirement. Back in the day, retirement was a single event: you worked until you reached a certain birthday, you had a nice party at work—and the next minute, you were fully retired. The leading edge of the boomer generation is redefining retirement as a career stage that may last several years or even a decade, through reduced work hours, working on contract or retiring and taking totally different employment.

The plan sponsor can sustain the appeal of the DC plan by showing employees how to factor it in to decision-making regarding the timing of retirement: how to handle DC lump sums, how and when to turn lump sums into streams of income and how to develop a financial retirement plan that takes all of these moving parts and their tax consequences into account.

Don’t forget Jules
Jules—closing in on that milestone 65th birthday—belongs to the traditionalist generation. Of course, Canadian law no longer mandates retirement at age 65, so Jules and his cohorts may retire well before or well after that significant birthday, depending on the industry or on personal choice.

Jules’s opportunity for significant contributions to the DC plan has passed. However, XYZ Company can add considerable value by providing investment products to help him manage his DC lump sum until he is ready to start taking income and by ensuring that he has access to professional, unbiased help in making the right decisions. Jules can then confidently switch to drawdown products as he continues to manage his DC plan money effectively long after he has left employment. Allowing Jules to remain under the umbrella of the DC plan for his drawdown product—which offers much lower fees than retail products—is one way that XYZ Company can help Jules to maximize his retirement income.

Selling smart phones? Talking up your DC plan? The product may be radically different, but understanding your employees’ needs at different ages and life stages—and applying the best practices of advertising and market research—will go a long way toward improving engagement and uptake. In the end, your DC party might just be the event of the season.

Annie Massey is a principal in the workforce communication and change business with Mercer. Jean-Daniel Côté is a partner in Mercer’s DC consulting unit.