Retirement Plan Services Lincoln Retirement Power Participant Engagement Study 791405
Executive summary Based on a large-scale national study of retirement plan participants, this paper highlights how individuals engage with their retirement plans and how they make retirement-related decisions. The findings suggest participant behavior is not two-dimensional (for example, engaged vs. disengaged). Rather, analysis of the combined effect of engagement and decision-making reveals a more dynamic model one that reflects the nuances of the participant experience. The study has implications for how plan sponsors and providers may improve plan design, as well as participant communications and education, to help drive better retirement outcomes. Key findings 1. Engagement: Despite self-reported involvement in their retirement plans, few participants are truly engaged and nearly half are disengaged. 2. Decision-making: The participant population consists of four decision-making types, the most prevalent of which is the decision-avoider. 3. Action: The combination of engagement plus decisionmaking drives action. All three levels of engagement appear within each of the four decision-making types, yielding 12 participant segments. 4. Mindset: Participants have mixed emotions about retirement, which affects what they do (and don t do) in their retirement plans. High-level recommendations 1. Help participants self-identify themselves based on how they make decisions and how much they engage in retirement planning activity. 2. Construct communication and education programs to reach all participant segments. 3. Optimize plan design to accommodate various types of decision-makers. 4. Offer in-person guidance and personalization. 5. Deliver outcomes-focused communication to motivate action. 5. Motivation: Participants are motivated by in-person communication of messages focused on actions and outcomes. 2
Findings: How participants engage To better understand how to motivate participants to take positive actions, we first examined how participants engage in their plans. Plan sponsors and providers often view a participant s behavior in his or her employer-sponsored retirement plan based on some measure of engagement. A participant s level of engagement with a retirement plan is entirely personal, and depends in part on how the participant thinks and feels about retirement. To understand the participant perspective, researchers asked participants directly: How would you describe the extent to which you are involved with your employer s retirement savings plan? More than two-thirds (69%) answered: I am completely or moderately involved. If only participant behavior were as positive as self-reported involvement, then plan sponsors could expect high engagement levels. Unfortunately, plan realities do not match up to participant perceptions. For the purpose of this study, a participant s level of engagement is determined by activities performed in the plan, including: Meetings and contact with the provider Use of calculators and reading material Making changes in deferral or asset allocation Checking their account balances and reviewing statements When measured this way, only a quarter (25%) of participants are engaged (very active), nearly half (46%) are disengaged (hardly active), and almost a third (29%) are on the fence (somewhat active see pie chart). Engagement levels How participants make decisions Engagement is one way to understand a participant, but it doesn t tell the full story. Plan sponsors may also get to know participants in terms of how they make decisions. In this study, researchers defined decision-making based on: The time participants need in order to make a decision in the plan Whether and how they involve a financial professional What participants say influences their decisions Using this paradigm, each participant can be described as one of these four types: The advice-seeker This person uses all available resources, consults a financial professional, likely has savings outside the plan, and feels the most optimistic and confident. The fact-finder This person 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. The decision-avoider This person consults a wide variety of sources, fears losing money, takes a long time to arrive at a decision, and feels anxious, overwhelmed and scared about the future. The instinct-follower This person is independent-minded, doesn t consult or rely on outside information, doesn t seek opinions, and feels optimistic and confident about the future. The largest group of participants overall is the decisionavoiders, followed by a tie between instinct-followers and fact-finders. Advice-seekers make up the smallest group. Decision-making types 46% 25% 29% % Participants Engaged On the fence Disengaged 27% 35% 11% 27% % Participants Advice-seeker Fact-finder Decision-avoider Instinct-follower 3
Findings: What drives action Our analysis suggests that the combination of engagement plus decision-making drives participant behavior. Decisionmaking and engagement are indeed distinct characteristics, and both are important. As the data below show, for example, a participant who is a decision-avoider isn t necessarily disengaged. Rather, a decision-avoider can be engaged, disengaged or on the fence. In other words: Every decision-making type can be segmented by every engagement level and vice versa. This view of the participant population suggests we don t simply have four decision-making types or three engagement levels. All combined, we have 12 distinct participant segments. Engagement levels across decision-making types Compared to others, advice-seekers are significantly more likely to be engaged. Yet just as many advice-seekers are on the fence, or only somewhat engaged. Perhaps this is because they share retirement responsibilities with financial professionals, taking select actions themselves and delegating the rest. The instinct-followers are the least engaged group, as they may make snap decisions without checking their accounts or contacting their providers. 25 % 38 % 38 % Engaged 37 % 25 % 38 % Instinctfollower 13 % Decisionavoider 47 29 % % 24 % On the fence Factfinder Adviceseeker 62 % 25% Disengaged Profiling 12 types of retirement savers The combination of decision-making types and engagement levels yields 12 unique participant segments, as shown in the matrix below. Each segment represents a different type of retirement saver, with unique characteristics including both strengths and opportunities as well as unique retirement-related needs and preferences. Decision-making Advice-seeker Fact-finder Decision-avoider Instinct-follower Engagement Engaged Leader Manager Analyzer Driver On the fence Coordinator Researcher Gatherer Believer Disengaged Delegator Voyager Juggler Adventurer 4
Findings: What drives action Advice-seeker Leader (4% of participants) This person is highly organized, informed, and engaged. In addition to working with a financial professional, they also monitor their account and contact their provider as needed. They are likely to have additional retirement savings outside of their employersponsored plan. Dynamics: Engaged advice-seeker Median age: 52 64% men, 36% women 100% have an advisor Median deferral rate: 12% Best way to receive information: One-on-one meetings after hours Coordinator (4% of participants) This person prefers to rely on a financial professional, and engage in plan activity every so often. Compared to their peers, they are the closest to retirement and the most likely to choose one-onone as their preferred method to receive information. Dynamics: On the fence advice-seeker Median age: 55 57% men, 43% women 100% have an advisor Median deferral rate: 10% Best way to receive information: One-on-one meetings after hours Delegator (3% of participants) This person turns most of their retirement planning over to their financial professional and has less direct involvement. They tend to be in their peak working years and if they re saving modestly in the plan, it s because they choose other investment vehicles. Dynamics: Disengaged advice-seeker Median age: 46 42% men, 58% women 100% have an advisor Median deferral rate: 6% Best way to receive information: One-on-one meetings after hours Fact-finder Manager (7% of participants) This person stays informed, pays close attention to trends, and acts accordingly. They would prefer to become a financial expert of sorts, rather than rely on one. Yet unlike their peers who work with advisors, they re more anxious about retirement and so may benefit from professional guidance. Dynamics: Engaged fact-finder Median age: 46 67% men, 33% women 13% have an advisor Median deferral rate: 10% Best way to receive information: One-on-one meetings during business hours Researcher (10% of participants) This person does considerable due diligence before making any major decision. They engage in retirement planning periodically. While they value expert opinions, they prefer to research and manage their investments themselves and are interested in asset allocation strategies. Dynamics: On the fence fact-finder Median age: 45 67% men, 33% women 7% have an advisor Median deferral rate: 8% Best way to receive information: Website content Voyager (10% of participants) This person gathers the facts, makes decisions quickly and independently, and then steps away. They may not take any action in their plan after they initially enroll. This is someone who may be anxious about saving for retirement or feel that there s plenty of time to focus on it later. Dynamics: Disengaged fact-finder Median age: 40 55% men, 45% women 6% have an advisor Median deferral rate: 6% Best way to receive information: Printed materials sent to the home 5
Findings: What drives action Decision-avoider Analyzer (10% of participants) This person takes time to consider all the angles and possible outcomes of a situation before making a decision. They often think about how much they have saved for retirement, and may worry about shortfalls. They re doing what they can, but they re not sure if they re doing everything right. Dynamics: Engaged decision-avoider Median age: 47 60% men, 40% women 47% have an advisor Median deferral rate: 10% Best way to receive information: Personal email Gatherer (8% of participants) This person collects a bevy of information and consults many people, especially their partner, but may become overwhelmed by all the input. They re very interested in how much they should save and are extremely concerned about maintaining their lifestyle in retirement. Dynamics: On the fence decision-avoider Median age: 40 51% men, 49% women 36% have an advisor Median deferral rate: 8% Best way to receive information: One-on-one meetings during business hours Juggler (17% of participants) This person balances multiple day-to-day responsibilities and competing financial priorities, often feeling anxious and somewhat disheartened. Saving for retirement is on their mind, but it seems out of reach. They need budgeting help to overcome the concern that they can t afford to save more. Dynamics: Disengaged decision-avoider Median age: 38 49% men, 51% women 30% have an advisor Median deferral rate: 5% Best way to receive information: One-on-one meetings during business hours Instinct-follower Driver (4% of participants) This person is an optimist who likes to do things on their own. They make changes in their retirement plan based on instinct rather than information or insight, and they re relatively confident their savings are on track. They typically choose target-date or lifecycle funds as a fast and ready solution. Dynamics: Engaged instinct-follower Median age: 52 74% men, 26% women 35% have an advisor Median deferral rate: 8% Best way to receive information: Website content Believer (7% of participants) This person is optimistic about the future, but may harbor some unspoken concerns about whether their savings are on track. They find their plan provider extremely valuable in furnishing information, but would prefer to meet a professional via instant messaging or online communication. Dynamics: On the fence instinct-follower Median age: 45 56% men, 44% women 17% have an advisor Median deferral rate: 9% Best way to receive information: Website content Adventurer (17% of participants) This person makes snap decisions and is honest about their low involvement in the retirement plan. There s a good chance they haven t checked their account since enrollment (or ever, if they were auto-enrolled). They think of the present much more than the long-term. Dynamics: Disengaged instinct-follower Median age: 42 57% men, 43% women 26% have an advisor Median deferral rate: 5% Best way to receive information: Printed materials sent to the home 6
Findings: What drives action The advice-seekers are more likely than any other group to be engaged, and they re also more likely to take all of the following recommended actions: Work with a financial professional Know their retirement account balance Exceed the match or max out Contribute 10% or more Fact-finders are similar to advice-seekers, except they are significantly less likely to be engaged (25% versus 38%), and less likely to take all of these recommended actions for example, they re far less likely to work with a financial professional (8% versus 100%) or contribute at least 10% of salary (39% versus 52%). The decision-avoiders and instinctfollowers are less engaged and less likely to take all of these actions compared to advice-seekers. Actions by decision-making style Work with a financial professional 8% Advice-seeker 36% 25% Decision-avoider 100% 89% 85% Know retirement 80% account balance 79% 67% Exceed the match 64% 49% or max out 44% 52% Contribute 10% 39% 39% or more 29% 0% 20% 40% 60% 80% 100% In addition to engaging more and taking more positive actions, advice-seekers also experience different outcomes from the retirement planning process. Compared to all others, advice-seekers are significantly more likely to have at least $100,000 saved and to feel on track to achieve retirement readiness. As with the activities above, the factfinders are the second most likely to reach these outcomes. This finding suggests that retirement plan participants may experience better outcomes when they work with a financial professional to help them personally plan and invest for the future. In particular, the engaged advice-seekers, or Leaders, seem to take the most recommended actions and achieve high retirement savings relative to the other groups. For this reason, we may consider Leaders to be aspirational peers and role models for fellow retirement savers. Outcomes by decision-making style 58% Have $100k+ saved 45% 29% 30% 63% Feel on track 43% 39% 38% 0% 20% 40% 60% 80% 100% Advice-seeker Fact-finder Did you know? Decision-avoider Instinct-follower Of all 12 participant segments, the engaged adviceseekers (Leaders) are the most likely to feel they are on track with their retirement savings (70%). Fact-finder Instinct-follower 7
Findings: How participants feel In addition to their engagement levels and decision-making styles, participants attitudes also affect their motivations and actions. Researchers asked participants how they feel when they think about their retirement savings, and the top two responses were optimistic (45%) and anxious (41%). Participants also have mixed emotions about specifics, especially the unknown factors that may affect their ability to retire. Regarding key details, such as paying for health expenses in retirement, many participants are very concerned and only a few are very optimistic (see graph). Concern vs. optimism Q1: How optimistic are you about the following? Q2: How concerned are you about the following? Saving enough to retire on time Maintaining lifestyle in retirement Converting savings to retirement income Paying for health expenses in retirement Paying for unexpected expenses Making good decisions as you age Paying for day-to-day expenses 19% 20% 22% 18% 18% 31% 63% 61% 55% 52% 39% 0% 20% 40% 60% 80% 100% Extremely/very concerned Extremely/very optimistic 70% 68% 66% It s not just the facts What happens when participants think about taking action in their retirement plans? When asked what influences their decisions around how much to contribute to their retirement accounts or how to invest, participants say hope tops the list followed by hard facts, previous experience, and fear. In fact, nearly nine out of 10 retirement plan participants cite hope as a major influencer. Despite fear of investment loss, participants generally are influenced by the hope that they will accumulate sufficient savings to retire comfortably. By taking action, they aim to turn hopes into reality. Some of these influencers could be called emotional and others informational. Looking at them another way, three out of four of these influencers are personal; indeed one s personal hopes, fears and previous experiences directly affect one s motivation to save for the future. The personal nature of retirement planning is powerful and undeniable. Key influencers Q: When you make a decision about how much money to contribute to your retirement plan or how to invest, to what extent do you think you re influenced by the following? Participants answering a great deal or somewhat 100% 80% 60% 40% 20% 0% 88% 86% Hope Hard facts 75% Previous experience 65% Fear Perhaps mixed emotions help explain why retirement isn t a top priority. Indeed, more than twice as many participants think about how well they re doing financially each week (53%) versus how much they ve saved or need to save for retirement (26%). 8
Findings: What motivates participants Researchers also explored communication methods to inform decisions and motivate positive changes among participants. The findings validate previous studies on this topic. According to the survey, a personal approach is (still) the top motivator for participants. For both informing decisions and motivating positive changes, the majority of participants prefer inperson, face-to-face communication (see graph). Ideally, participants would like to be one-on-one, but they re also interested in group sessions. Participants want to be able to interact with a person who is qualified and knowledgeable about retirement planning, someone who can help them overcome their retirement fears and bring their hopes to fruition. Planning for retirement requires individuals to manage and make sense of both emotional and informational inputs in highly personal ways. By offering personal guidance, a financial professional can help participants synthesize all these inputs, gain perspective, and determine what to do as a result. Preferred methods to inform decisions Participants selecting as first or second choice 100% 80% 60% 40% 20% 0% Preferred methods to motivate changes Participants selecting as first or second choice 100% 80% 60% 40% 20% 0% 54% In-person 67% 40% Email 30% 34% Website In-person Calculators Model or worksheets portfolios 29% Mail 13% Telephone 25% 20% 17% Website Email Messages that motivate In-person delivery is clearly preferred, but what about the content of the message? Consistent with previous studies, we have found that participants prefer messages that focus on actions and outcomes, rather than processes. Most participants would rather learn what to do today and what outcome they might expect at retirement time, as opposed to researching the mechanics of how a certain investment or asset class works (see graph). Message preferences Q: Which of the following topics are you most interested in? Ensuring you have a steady income in retirement Understanding the importance of investment diversification How much you should save How to spend wisely in retirement Making your money work for you Investment advice How to save for retirement Envisioning your retirement lifestyle Tools and calculators to help you plan Investment product selection 18% 24% 23% 30% 34% 0% 20% 40% 60% 80% 100% Outcomes/Action 54% Processes/Information 61% 69% 69% 77% Note: In-person includes both one-on-one and group meetings. 9
Recommendations This study reveals new ways to motivate participants to take action, and ultimately, help drive better retirement outcomes. Here are some specific actions to consider as a result of this study: 1. Help participants self-identify themselves based on how they make decisions and how much they engage in retirement planning activity. From the research, we ve identified 12 participant segments. We believe this approach to segmentation yields a richer understanding of participants mindsets, motivations and likely actions. To segment effectively, allow participants to self-identify based on positive descriptions of each participant segment, or invite them to take a quiz that will provide them with a personal assessment. This should be done as early as possible in the participant experience. For example, plan sponsors and providers have the best opportunity to collect information from participants before and during enrollment, and may wish to deploy a survey at that time. This approach would serve a dual purpose: First, to welcome participants into the retirement planning process, and second, to maximize the plan sponsor s ability to develop relevant communication and education programs. If possible, plan representatives should also use annual one-on-one meetings to get to know participants who are already enrolled and to check back with those who have taken a quiz or self-identified at a previous time. In this way, the segmentation strategy becomes an ongoing relationship-building tool. We ve created an interactive online quiz for participants based on this study (see last page). 2. Construct communication and education programs to reach all participant segments. Retirement plan communications must appeal to all 12 participant segments. While developing educational programs, plan sponsors and providers may consider special strategies for disengaged participants, instinct-followers, and decision-avoiders in particular. These groups represent the greatest area of opportunity, as they are currently taking fewer of the recommended actions. Motivate participants who are relatively disengaged to take one simple step, such as checking their account balances or meeting their employer s match. Encourage those who have difficulty making decisions and those who rely on their own instincts to speak with a financial professional. Keep in mind that each participant segment has unique communication needs and preferences. For example, engaged fact-finders are likely to do their own research by culling content from the plan provider s website, newsletters and other material, whereas disengaged instinct-followers aren t likely to pay attention to any of those resources. A mix of content across all communication channels may have the furthest reach and greatest impact. 3. Optimize plan design to accommodate all participant segments. The most difficult decisions getting in the plan, deciding how much to save, and selecting investments can be real barriers, particularly to decision-avoiders and disengaged participants (two of the largest groups overall). To help overcome these barriers, consider automatic features, such as auto enroll and auto escalate, as well as streamlined investment solutions (for example, QDIAs, target-date funds, managed accounts and automatic retirement income options). However, there are alternatives to full auto solutions: Some plans offer tools that help participants make and keep savings commitments. In these plans, participants are able to sign forms by which they may set up increased contributions at a future date, such as when they receive a raise or achieve a personal milestone. It s a great way to encourage positive actions through self-directed, personal reminders. In addition, the employer match can be used to motivate employees and increase participation and deferral rates. The participants who feel the most on track toward retirement (namely, engaged advice-seekers and fact-finders) are more likely to meet or exceed the contribution rate that the employer matches. Many others tend to save only up to the match, and no more. We recommend setting a specific match strategy and goal for each plan; for example, depending on their circumstances, a plan sponsor organization may decide to aim for 80% of eligible participants contributing 11% to 14% of pay after five years of tenure. Implement effective match strategies, including stretching the match if possible. Consider using the automatic program to increase contribution rates closer to 10% through auto enrollment, auto escalation and reenrollment. Finally, target relevant communication and education about the employer match toward eligible nonparticipants and those who participate below match and do not escalate. 10
4. Offer in-person guidance and personalization. Participants prefer group sessions and one-on-one meetings with financial professionals to inform their decisions and motivate positive changes. A personal approach can help participants address the most personal and influential factors in retirement planning, including their hopes, fears and personal experiences. In addition to in-person methods, plan sponsors also have an opportunity to work with providers and evaluate all other communication channels. Together, we can find creative ways to make every interaction with the participant from enrollment through retirement more personal, to complement the in-person relationship. This means putting the personal experience at the center of the participant experience. 5. Deliver outcomes-focused communication to motivate action. The majority of participants want to know about simple actions they may wish to take today, rather than how their investments work. Avoid inundating participants with content that is informational only such as messages about complicated processes. Participants don t want to be money managers; they want to be retirees. Therefore, even the most educational content may be framed in such a way as to drive positive action, and in turn, better retirement outcomes. Closing thoughts Through this study, a new perspective on participant behavior emerges: Engagement + Decision-making = Action We believe a personal approach is the key to this formula. Find out how we can partner with you to drive better retirement outcomes. Together, let s power retirement! To discuss the online quiz or other communication ideas from this study, contact your Lincoln representative. View the quiz and more at LincolnFinancial.com/RetirementPower. 11
Study methodology The Lincoln Retirement Power Participant Engagement Study is based on a national survey of 2,530 full-time private-sector workers ages 21 to 66 who have been contributing to their current employer s defined contribution retirement plan for at least one year. The research was conducted online and implemented by Mathew Greenwald & Associates, Inc. The data are weighted by gender, age, race/ethnicity, and education to reflect the total population of full-time private-sector employees in a retirement plan. 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 retirement planning. Through the program, we seek to identify forward-thinking ways to help plan sponsors drive better retirement outcomes. As part of the program, we sponsor both proprietary and third party research with an emphasis on what drives better retirement outcomes. Insights to drive outcomes View our new online participant quiz and other resources at LincolnFinancial.com/RetirementPower. 2014 Lincoln National Corporation Lincoln Financial Group 150 N. Radnor-Chester Road Radnor, PA 19087-5238 LincolnFinancial.com 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-791405-010714 POD 1/14 Z02 Order code: DC-ENGDM-WPR001