People don’t consciously control a lot of their behaviour. For plan sponsors, this is frustrating, because getting employees engaged in benefits and retirement plans is all about behaviour change.
At the Benefits Canada 2012 Benefits & Pension Summit, keynote speaker Peter Sheahan, founder and CEO of ChangeLabs, had some good news: plan sponsors will be more successful at getting members to do what they want by using the four types of decision-making strategies: consequential, identity, habit and structure. From there, they can shape communication strategies to influence behaviour.
“Linking cause and effect is necessary to change behaviour,” he explained, referring to the consequential mode. “Ask yourself, What can I do to incentivize short-term behaviour while also thinking about long-term consequences?”
Investing in wellness critical to culture
Volatility, large liabilities challenge DB plansTo leverage the identity mode, plan sponsors need to align an individual’s self-identity with the behaviour they want to establish, said Sheahan. “To do it, first define the narrative that you’re trying to get people to buy in to. Then start providing the set of behaviours that will support the story.” For one, don’t label your retirement program as retirement, because people don’t identify with that. “Call it the Wouldn’t you like to have options at 40? program,” he suggested.
Habitual and structural decision-making involve setting up environments to support the type of choices you want to happen, either because of habit or because the system, like a workplace, is organized to push a certain behaviour. For example, auto-enrollment and auto-escalation rely on habit and structure to get people to participate.
Sheahan’s closing piece of advice was to invest time and effort in the design of your communication strategy. Integrating different decision-making modes into any strategy will boost the likelihood that plan sponsors will have members doing just what they want them to.
The impact of PRPPs
Plan sponsors are eager to know how the pooled registered pension plan (PRPP) will affect their existing retirement savings programs. In a panel discussion, Martin Belanger, director, investments, with Western University; Oma Sharma, a partner with Mercer; and Sue Reibel, senior vice-president and general manager, group retirement services, with Manulife Financial, outlined expected developments and the possible impact of the PRPP on the DC landscape.
“To the extent that the hurdles to setting up a DC plan are too high for employers, [the PRPP] could be an attractive way to get a retirement savings vehicle in front of employees. RRSP and DC plans come with a large commitment of time and effort,” said Sharma, adding that the PRPP will not be attractive if the provincial rules around it require too much effort or commitment from employers to set it up and run it.
Reibel believes the PRPP will not be appealing to employers that already offer a retirement savings plan. “Employers with an existing plan are used to flexibility. You can’t get that with the PRPP,” she explained. “So there will have to be a very significant value proposition from providers to get [employers] to move into a PRPP.”
Considering that Canadians have more than $500 billion of unused RRSP space, Belanger doesn’t expect the PRPP to take off unless it’s made mandatory. He said that once the regulations are sorted out, smaller employers might find the vehicle appealing, but only if it allows them to deliver a savings vehicle at a low cost. “There are going to be administrative costs for the plan sponsors, because they will have to select a provider, co-ordinate communication and do enrollments.”
The panel agreed that the most likely candidates for the PRPP are small employers that do not already offer any savings vehicle. But until the provincial governments put forth their regulations, as Quebec has already done, the industry remains in wait-and-see mode.
New media strategies
Since 80% of Canadians now have access to the Web through computers, tablets or smart phones, it’s a good time for plan sponsors to develop a new media strategy to engage employees, said Jackie Gallant, assistant vice-president, marketing and communications, with Sun Life Financial. A successful strategy includes three steps.
- Live your brand – Infuse all internal communications with the same feel and approach as the external material.
- Be bold – Take creative risks with ways to engage employees.
- Make it collaborative – Offer ways to participate and give feedback through internal wiki pages or blogs.
At Niagara Casinos, director of HR services Colleen Falco followed this approach. With 3,700 members and 400 job classifications, Niagara Casinos had a broad group to engage when it rolled out target date funds (TDFs) as the default. Using the TDF launch as a springboard for re-enrollment into the DC plan, Falco and her team put in place a mandatory education and plan re-enrollment session.
Falco started by mailing a letter with a message from the president to employees, introducing the new funds and informing them of the pension sessions. At the sessions (an hour of education and a half-hour of re-enrollment), videos, paper documents and live facilitators were used to educate members, and then the members enrolled using Playbooks.
“We had 42% of our members defaulted in the money market fund, and 19% were totally invested in it.” The goal was to move employees and money out of the fund, into more appropriate options.
“So far, 85% of plan members have taken action by making changes to their investment choices or contribution levels,” Falco added. “We have moved about $9 million out of the money market fund and $30 million into the target date funds.” Her advice is to invest time in developing the tone and style of communications to catch their attention.
The future of auto features
Over the past few decades, Canadians have lost their culture of savings, said Joan Johannson, president of BMO group retirement services. Combined with people’s natural tendency to procrastinate, plan sponsors face a significant challenge in engaging them in retirement planning.
Auto features—such as auto-enrollment and auto-escalation—offer important vehicles to overcome this challenge and have proven successful in the U.S. and Australia. The auto-escalation features in particular have resulted in much higher average savings than in Canada. Johannson is encouraged by the inclusion of this feature in proposed VRSP legislation and hopes this is adopted both federally and provincially.
“However, there are some disadvantages to these features, as they can somewhat institutionalize disengagement by making it too easy not to make decisions. In effect, the employee can feel all is looked after without using the tools or attending the seminars provided. This can foster complete dependency pre-retirement on these features and, perhaps, a false assumption of adequacy.
“Having said that…the provision of these automated features, such as auto-enrollment, can ensure that everyone is provided with the opportunity to save—and, with auto-escalation, that they are doing so at an improving contribution level. The default fund provides a prudent investment selection—and, given that employees can decide to engage at any time and make their own decisions, these automated features can offset the typical reluctance of employees to get involved. In the end, these advantages appear to outweigh the possible disadvantage of reinforcing natural tendencies to do nothing.
“As such, it is critical that the automated tools be accompanied by targeted communications to encourage employees to become engaged. A good communications program can catch the attention of employees and help motivate them to make active decisions at different stages in their lives,” said Johannson. “Automated features, when combined with communications, definitely help to create a more opportune environment for savings and can form critical components of the overall retirement strategy.”