2015 Lincoln Retirement Power Participant Engagement Study

Transcription

1 RETIREMENT PLAN SERVICES 2015 Lincoln Retirement Power Participant Engagement Study White paper

2 Executive summary How have participant attitudes toward changed since the end of the Great Recession? Retirement participants have grown more optimistic about saving for since 2012, when they were first surveyed in a large-scale national study. But they re also less engaged and deliberative in managing their benefit. Using a dynamic model to understand participants based on interdependent behavioral drivers, the study highlights the attitudes that pose a threat to security and those associated with saving success. The research reinforces the value of a flexible, databased approach to improving outcomes through strategic design and participant outreach. Key findings Mindset: Plan participants are more optimistic, more confident, and less anxious about success than when surveyed in Behavior: Of the 12 saver types Lincoln profiles, the group that has increased the most is made up of participants who are less engaged with their s and more instinctive in making -related decisions. By their own admission, participants in this group are doing the worst job of preparing for. Plan design strategies and in-person guidance hold the greatest promise for setting these employees on the right path. Planning: The majority of participants consider themselves competent ners and want to stay on track with their savings. Yet few have defined specific savings goals or created formal, s actions that correlate with a positive view of -saving progress. Plan sponsors who understand how to motivate their participants to act can make the most progress in bridging this gap. Motivation: Participants are motivated by life events (when they happen) and other triggers, meeting with a financial, financial wellness education that addresses competing financial demands, and personalized communications, such as income projections. Communication: In-person meetings are the strongest motivators of positive participant action, while calculators and worksheets have the next greatest impact. The demand for mobile device functionality is growing, 2 especially among younger workers. High-level recommendations 1. Consider researching your own employee population or, if that s not possible, identify the key research findings that are most relevant based on what you already know about your participant dynamics. 2. Support participant engagement and decision-making through design elements such as autopilot features and strategic use of matching contributions. 3. Offer in-person guidance, the most powerful approach for motivating participants to act. 4. Make communications as personal as possible, with segmented content delivered in-person and concrete examples to show what certain information might mean to the participant on a personal level. 5. Deliver multichannel communications that address the diversity of your employee population. Content should address the range of financial topics that inform participants budgeting and make possible their long-term saving success. 6. Don t set it and forget it after determining your strategy. Frequently reevaluate your approach against the most current data and trends.

3 Introduction The interplay of personal factors and environmental conditions shapes the behavior of participants. The Lincoln Retirement Power Participant Engagement Study first identified the key personal drivers in 2012, and we ve enhanced our analysis with this update. The Lincoln model combines participants -related activity levels with their approach to saving and investing decisions to create 12 saver types. By viewing survey data through this lens, our analysis illuminates behavior trends and defines the challenges and opportunities for sponsors in strategizing to improve outcomes. As in the previous survey, the current survey evaluates participants mindsets toward saving; related activities and decision-making styles; motivators; and communication preferences. In addition, the new survey incorporates goal setting and financial ning behaviors to deepen understanding of what drives positive action and saving success. The study finds significant shifts in participants mindsets as well as their engagement levels and decision-making styles. Participants today are more optimistic and confident, but less engaged in their s and more instinctive in making -related decisions. The increase in confidence mirrors the findings of other surveys. For example, other studies have shown: Among workers who participate in their employers defined contribution s, 73% were confident in 2015 that they would have enough money to live comfortably throughout, compared with 63% in Consumer confidence shot up to 94.6 in January 2015 from 76.6 in 2012, according to the University of Michigan Index of Consumer Sentiment. 2 The university s survey of consumers also found that trust and confidence in financial institutions has improved considerably since the financial crisis. 3 Influencing the Lincoln survey results may be the dramatic change in the investing climate since 2012, when the stock market was still recovering from the Great Recession. At the start of 2012, the Dow Jones Industrial Average was 12,218, off 8% from its 2008 start. With so much uncertainty about stock returns and the strength of the economy, many participants, like investors in general, focused on tracking the ups and downs of their account balances and were jittery about taking investment risk. In contrast, three years later the Dow had climbed, to 17,283 at the start of Less anxious and more optimistic, participants today may be less motivated by their environment to engage with the or devote effort to decision-making. Unfortunately, for many participants this optimism isn t supported by behaviors that are consistent with saving best practices. Findings MINDSET: Positive outlook When asked how they feel about their savings, participants today are considerably more positive: Optimism, confidence, and excitement each grew by six percentage points over 2012: 51% of participants described themselves as optimistic and 35% feel confident about savings. The percentage of participants who are anxious about savings declined by 10 percentage points, to 31% of participants from 41% in Which of the following best describes the way you feel when you think about your savings? Please select the TWO that describe you best. Optimistic Confident Anxious Overwhelmed Scared Excited Confused Indifferent Angry 2% 2% % participants 24% 18% 21% 14% 8% 13% 14% 11% 15% 29% 35% 31% 41% % 51% EBRI/Greenwald & Associates, 2012 and 2015 Retirement Confidence Survey. 2 University of Michigan, Index of Consumer Sentiment, University of Michigan, Surveys of Consumers,

4 Similarly, a smaller proportion of participants now express concern about specific financial issues, from saving enough to retire to making good investment decisions as they age. For example, when asked about saving enough money to retire when they want to, 49% say they re concerned, compared with 70% in Percent extremely/very concerned about... Being able to accumulate enough money so you can retire when you want to Having enough money to pay for health expenses in Having enough money to maintain the lifestyle you want in When you retire, being able to convert your savings into income that will last through the rest of your life Your ability to make good investment decisions as you age % participants 3 Meanwhile, more participants now express optimism about those same financial issues. And fewer strongly agree that the economy makes it challenging to stay on track with saving: 1 today compared with 37% in BEHAVIOR: Adventurers dominate The Lincoln Dynamic Dozen model maps participants to 12 profiles based on the combination of engagement level and decision-making style, which together drive related behavior. Overall, the survey found a significant decline in engagement and a sharp rise in instinctive decision-making. For more information, see the Appendix. Engagement. The survey measures engagement based on level of interaction with -related activities, such as meeting attendance, use of web calculators and educational materials, and account monitoring. Participants are categorized as less engaged, on the fence, or more engaged. In the current survey, 58% of participants are less engaged, compared with in Less engaged participants tend to feel optimistic about their finances but also more anxious and overwhelmed. They re more likely to rely on their employers for financial information. 49% 48% 48% 55% 63% 68% 6 70% Participants are less engaged in specific activities such as checking their account balances or changing their contribution rates that may be associated with market jitters. In contrast, their engagement in activities such as attending educational meetings and seeking financial advice has held steady, which suggests they still want help with the benefit. While some participants may exaggerate their involvement, others may genuinely feel engaged simply by virtue of being a participant. In fact, 47% of participants categorized by the model as less engaged actually selfidentify as engaged with the, further evidence that low engagement shouldn t be confused with apathy. Decision-making. Decision-making style is based on criteria including time needed to make -related decisions, sources of influence, and extent of involvement with a financial professional. Participants exhibit one of four styles: Advice-seekers rely on professional help and are confident. Fact-finders turn to numbers and research and are optimistic but anxious. Info-explorers strive to gather broad input, which induces information-overload anxiety. Instinct-followers act quickly, confidently, and with little input. In the current survey, 47% of participants are instinctfollowers, up dramatically from in Instinctfollowers are the least likely group to have set financial goals. They contribute less to the and are the most self-critical when asked how good a job they re doing with saving. Consistent with the rise in instinct-followers, the study finds that fewer participants now respond to outside sources of influence, such as hard facts and numbers (71%, down from 8 in 2012), loss aversion (47%, down from 65%), and expert opinion (54%, down from 64%). Rise in Adventurers. It may be no surprise that of the 12 groups in the Dynamic Dozen, the one comprised of less engaged instinct-followers has increased the most since 2012 and is now the largest group. Participants in this group are known as Adventurers. The percentage of Adventurers has nearly doubled, rising to 32% of participants from in Adventurers are focused on today, not tomorrow. They make snap decisions and move on, rarely returning to monitor the progress of their accounts. Their increase spans all ages and income levels but is most marked 4

5 among Millennials, Generation X, and those with incomes under $125,000. Retirement saver types Note: For more information, see Appendix. For which of the following have you established a specific goal? % participants Specific goal Rough estimate No goal % participants The amount of money you'll set aside as 3 41% 23% Advice-seeker Leader Coordinator Delegator 3% 4% 3% 4% 3% 3% When you want to retire How much money you'd like to have saved by the time you retire The amount of yearly income you want to receive in 49% 24% 24% 49% 21% 52% Fact-finder Info-explorer Instinct-follower Manager Researcher Voyager Analyzer Gatherer Juggler Driver Believer Adventurer 4% 7% 5% 8% 9% 4% 9% 7% 14% A budget for expenses during 32% The amount of funds you'd like to have saved for future healthcare expenses 1 43% 41% 15% 42% 43% Asked their orientation toward ning, about 65% of participants strongly or somewhat agree that they re organized ners, 65% that they re disciplined about saving for, and 6 that they re good at setting and meeting goals. Yet most have only an informal financial (47%) or no at all (); a mere have created a formal, written with the help of a financial. Which of the following do you have? % participants Now the largest group of savers, Adventurers also may need the most help to set and achieve goals, as indicated by the following survey results: Only 38% feel they are doing a good job saving for and 28% say they feel confident. Only 48% know their account balance and 35% of those who receive a match contribute at a rate that exceeds it. Just work with a financial professional. PLANNING: Goal-setting challenge While 90% of participants say it s important to stay on track with their saving, far fewer have set specific saving goals. Most participants (77%) have at least a rough idea of how much they intend to set aside for this year, but only 3 have set a specific target. Even fewer have set goals for long-term savings, age, or income. By and large, instinct-followers trail the other decision-making types on financial goal setting. None of the above A formal, written financial created with the help of a financial 47% A formal, created without the help of a financial An informal financial When participants who haven t yet created a financial are asked how they would go about doing it, 35% say they would consult a financial professional. Another 19% 5

6 might seek advice after doing their own online research, while 21% would develop the themselves using online tools. MOTIVATION: Up close and personal Our research suggests that several factors play a role in motivating participants to take positive action, including the timing, scope, and personalization of sponsor outreach. Timing. Participants report being most motivated to act in response to events that focus their attention on current financial needs or opportunities. Life events, such as getting married, having a child, moving, and changing jobs, don t happen often but are highly motivating when they occur. Certain events that happen more frequently such as getting a raise or a bonus, and meeting with a financial professional are also sources of motivation. How, if at all, did the following events or seasons impact your motivation to make positive changes in your savings (in the past year)? Note: Excludes those who answered not applicable for each item. % participants Extremely motivating Very motivating Somewhat motivating Scope. Participants routinely juggle multiple financial goals, so it s not surprising that they rank budgeting and managing debt, along with investing and saving, among their most-researched topics during the past year. In conducting this wide-ranging research, they re seeking financial wellness the ability to balance competing short-term and long-term financial needs. This broader competency enables them to make better saving decisions. Which of the following topics did you research or learn more about (in the past year)? % participants answering "yes" Choosing the right investments Managing debt How to know if you re on track with your savings How to budget How to maximize Social Security Understanding the tax rules governing your Budgeting for expenses in Converting your savings into income How to avoid taking loans from your 22% 25% 30% 3 35% 39% Getting married Getting a raise or bonus Having a child Moving to a new home/apartment Changing jobs Meeting with a financial professional When the stock market is up Open enrollment at work Tax season New year/the beginning of the year Receiving educational materials Your birthday 12% 23% 12% 11% 22% 19% 9% 19% 9% 18% 8% 18% 8% 1 12% 13% 1 5% 11% 23% 29% 34% 29% 30% 28% 24% Personalization. Personalized income projections forecast income in based on current account balance and contribution rate. Some 71% of participants recall receiving one of these statements and more than two-thirds (69%) of the rest would like to see one. The response to projections is overwhelmingly positive: 34% say they felt reassured that they were on track. 28% took steps to fine-tune their strategy, either on their own or with an. 12% immediately increased their contribution rate. were persuaded that they should save more but felt they couldn t afford it now. Only a small proportion of participants felt overwhelmed (8%), hopeless (), or confused () by the information. 6

7 When you received this information ( income illustration), how did you react? Note: Participants were able to select more than one response. % participants who received income illustrations I felt reassured that I m on track 34% I realized the need to increase my savings, but have to wait until it fits into my budget Seeing the projection had no impact 19% I began to do more research and calculations 18% I increased my contributions 12% I met with a financial professional 11% COMMUNICATION: In-person, please In-person meetings with a financial professional are by far the most effective communication vehicle for motivating participants to make positive changes to their savings: 6 cite meetings as the most motivating, while 35% prefer calculators and worksheets and favor model portfolios. Newer communication channels also are taking hold, especially among younger workers. Half of participants would be interested in greater mobile device functionality for their accounts. That number rises to 61% among Millennials. Preferred methods to motivate changes Note: In-person includes both group and one-on-one meetings 6 In-person 35% Calculators or worksheets % participants selecting as first or second choice... Model portfoilos Website 14% 9% 8% Webinar Video Mail Recommendations This study reveals new ways to motivate participants to take action, and ultimately, help drive better outcomes. Here are some specific actions to consider as a result of this study: 1. Use research-driven insights to guide action. Research can be a guide to understanding your employee population. Consider periodically surveying your participants to keep pace with shifts in their behaviors and perspectives. You can also increase participant self-awareness and engagement by promoting the interactive online quiz at ChiefRetirementSavingsOfficer.com. Based on the Lincoln saver-type model, it guides participants toward understanding their behavioral drivers and suggests appropriate actions. 2. Optimize design. Automatic features and strategic use of matching contributions can be powerful tools for supporting participant decision-making. While you may get the attention of Adventurers at enrollment, you may not engage them again. Behavioral finance studies have demonstrated the effectiveness of automatic features automatic enrollment, annual escalation, and Qualified Default Investment Alternatives (QDIAs) which leverage participants inertia to set and keep their savings on track. Automatic solutions with an opt-out provision are ideally suited for participants who are less engaged or have trouble with decision-making. If you can t offer the full auto suite, consider helping participants commit to future savings through reminder s or printed forms. Also consider stretching the contribution amount that your organization will match. For example, instead of matching 100% up to the first 3% deferral, offer to match 50% up to. Your cost won t change, but participants will be motivated to save at a higher level. 3. Offer in-person guidance. Participants favor meetings for receiving information; they say it s the outreach channel most likely to motivate them to take action. Among participants who say in-person meetings are the best way to communicate with them, 7

8 58% say they prefer one-on-one meetings at work during business hours. In-person interactions leverage the power of personalization: financial professionals can address the hopes and fears and specific circumstances of individual participants as well as employee groups. 4. Make outreach more personal. Participants appreciate personalized outreach, including personal income projections, which show the amount of income their savings could generate in at their current contribution rate. The majority of participants who have received projections either are reassured by them (34%) or have taken steps to improve their saving strategy (3). However, it s important to note that a small number of participants were discouraged or confused by the communication and this group shouldn t be overlooked. Meetings and written collateral should provide sufficient context for understanding the statements and should help participants take the appropriate next steps. In-person communication delivered with an optimistic tone may be the best way to motivate a discouraged participant to take positive actions and, in turn, improve their outlook. Another way to make outreach more personal is to target messaging around times when participants are already inclined to make positive changes for example, when raises and job changes occur, or after life events such as marriage or the birth of a child. 5. Deliver integrated communication and educational content. Use a variety of media and communication channels to connect with your diverse employee population. Keep in mind that 49% of participants who prefer to receive written communications favor printed materials mailed to the home. Mobile device capabilities can help engage many participants, including Millennials. Consider the importance of education that promotes financial wellness by helping employees balance current financial demands with the commitment to long-term saving. 6. Don t set it and forget it. After determining your strategy, frequently reevaluate it against the most current data and trends. Make adjustments as needed when shifts in participant demographics, market and economic conditions, or other factors result in changes to participant attitudes and behaviors. 8

9 Appendix The Lincoln Retirement Power Participant Engagement Study defines a unique model for understanding participant behavior based on level of engagement with the and approach to making -related decisions. The model comprises 12 saver types a Dynamic Dozen of distinct profiles that inform sponsors, intermediaries, and providers in developing strategies to improve outcomes. Plan participants also benefit directly from the model through an online quiz that can show them their behavioral drivers and guide them toward positive actions. The quiz is available at ChiefRetirementSavingsOfficer.com. RETIREMENT SAVER PROFILES: The Dynamic Dozen Decision-making Advice-seeker Fact-finder Info-explorer Instinct-follower More engaged Leader Manager Analyzer Driver Engagement On the fence Coordinator Researcher Gatherer Believer Less engaged Delegator Voyager Juggler Adventurer Engagement. This model identifies participants as more engaged, on the fence, or less engaged based on how frequently they conduct -related activities, such as: Attending meetings and contacting their provider Using calculators and reading educational materials Changing their deferral rate or asset mix Checking their account balance and reviewing statements Decision-making. This model defines four decision-making styles, based on factors including: Time needed to make -related decisions Sources of influence on those decisions Extent of involvement with a financial professional The decision-making styles include: Advice-seeker uses all available resources, consults a financial professional, likely has savings outside the, and feels the most optimistic and confident Fact-finder is influenced by hard facts and numbers, prefers model portfolios, seeks opinions through research rather than personal advice, and feels optimistic as well as anxious Info-explorer consults a wide variety of sources, takes longer to arrive at a decision, and may be anxious due to information overload Instinct-follower is independent-minded, doesn t consult or rely on outside information, doesn t seek opinions, and feels optimistic and confident about the future 9

10 Advice-seeker Fact-finder Leader (3% of participants) Is highly organized, informed, and engaged. Works with a financial professional but also monitors account on own and contacts provider as needed. Is likely to have savings outside. Manager ( of participants) Stays informed, pays close attention to trends, and acts accordingly. Would rather be a financial expert than rely on one, yet is more anxious about than peers who have s and so may benefit from professional guidance. Dynamics: More engaged advice-seeker Median Dynamics: More engaged fact-finder Median 54 14% 68% men 32% women 100% have an 81% 60% 81% 60% 50 71% men 29% women 9% have an 61% 61% Coordinator (3% of participants) Prefers to rely on a 58% professional, personally 58%engaging only now and then. financial Researcher (5% of participants) Does much due diligence 64% 64%Periodically 22% engages in before making a22% major decision. ning. Values expert opinions but prefers to do own research and investment management. Is interested in asset allocation strategies. Dynamics: On the fence advice-seeker 38% 53% 38% Median53% Dynamics: On the fence fact-finder 25% 25% Median 53 60% men 40% women 81% 60% 58% 58% 100% have an 81% 60% Printed materials sent to home 49 men 54% women 61% 64% 22% 64% have an 61% to home 22% Delegator (3% of participants) Turns most 38% over to53% 38% 53% ning a financial professional. Tends to be in peak working years. If savings rate is modest it s because has selected other investment vehicles. Voyager (9% of participants) Gathers facts, makes decisions 25%and independently, away. After enrolling in quickly and25% then steps may take no further action. May be anxious about saving for or to think about it later. Dynamics: Less engaged advice-seeker 81% Median60% Median81%age: 60% Dynamics: Less engaged fact-finder 61% Median Median61%age: 35% men 65% women 58% 38% 53% 38% 100% have an % 53% 40 49% men 64% 22% 25% 25% 13% have an 64% 22% 51% women Printed materials sent to home

11 Info-explorer Instinct-follower Analyzer (4% of participants) Takes time to consider all angles and possible outcomes of a situation before making a decision. Thinks often about savings progress and may worry about a shortfall. Is doing best but isn t sure that s good enough. Driver ( of participants) Is an optimist who likes to do things on own. Makes changes in based on instinct, not information or insight. Typically chooses target-date or lifecycle funds as a quick solution. Dynamics: More engaged info-explorer Dynamics: More engaged instinct-follower 47 Median 54% men women 52% have an 70% 47% 70% 47% 51 Median 6 men 34% women 41% have an 6 12% to home 29% 6 29% Gatherer ( of participants) Collects information and with partner 43% and others but may43% consults become overwhelmed by all the input. Wants to know how much to save and is concerned about maintaining lifestyle in. Believer (9% of participants) Is generally optimistic about doubts.41% future41% but may harbor Values information from provider but would prefer to meet with a professional via instant messaging or online. Dynamics: On the fence info-explorer Median Dynamics: On the fence instinct-follower 1 21% 1 Median21% 48 47% men 53% women 70% 47% 43% 37% have an 70% 47% 43% 49 9% 61% men 39% women 6 29% 41% 41% 33% have an 6 29% Printed materials sent to home Juggler (14% of participants) Balances day-to-day competing responsibilities and financial priorities, often feeling anxious and disheartened. Thinks about saving for but it seems out of reach. Needs budgeting help. Adventurer (32% of participants) Makes snap decisions 21% low involvement 1 21% May not have checked and is1 honest about in. account since enrollment (or ever, if auto-enrolled). Focuses on present more than future. Dynamics: Less engaged info-explorer 70% Median47% Median70%age: 47% Dynamics: Less engaged instinct-follower 6 Median29% Median6 age: 29% 43 45% men 55% women 43% have an 43% 43 57% men 41% 1 21% 1 have an 41% 43% women 21% 11

12 Methodology The 2015 Lincoln Retirement Power Participant Engagement Study is based on a national survey of 2,508 full-time workers ages 22 to 68 who have been contributing to their current employer s defined contribution for at least one year. The research was conducted online by Greenwald & Associates. The data are weighted by gender, age/generation, race/ethnicity, and education to mirror the total population of full-time private sector participants. The current study updates the study initially conducted in August 2012, which used the same methodology. About the Lincoln Retirement Power Program We believe insights should empower decision-makers to take positive actions. Established in 2010, the Lincoln Retirement Power Program is our platform for research and viewpoints on central issues related to ning. Through the program, we seek to identify forward-thinking ways to help sponsors, intermediaries, and participants. As part of the program, we sponsor both proprietary and third party research with an emphasis on what drives better outcomes. Insights to drive outcomes View our online participant quiz at ChiefRetirementSavingsOfficer.com. For more research and insights, visit LincolnFinancial.com/RetirementPower Lincoln National Corporation LincolnFinancial.com/ RetirementPower Lincoln Financial Group is the marketing name for Lincoln National Corporation and its affiliates. Affiliates are separately responsible for their own financial and contractual obligations. LCN POD 10/15 Z02 Order code: DC-ENGDM-WPR002