Nudge theory can help strengthen financial wellness initiatives

After last year, it’s no wonder there are so many more worries about financial health. But while plan sponsors have good intentions in their efforts to help participants increase their retirement savings and other financial outcomes, the latter have failed to notice.

The TIAA-CREF Retirement Insights Survey, published in December 2020, found that 82% of employers have increased their focus on employee health and safety, 69% have increased their focus on employee financial well-being, and 60% have increased their focus on retirement planning.

However, while 75% of workers recognize their employers’ increased emphasis on health and safety, only 32% of workers have recognized the renewed focus on financial well-being and 25% have recognized the increased focus on retirement provision.

Read more: How Sponsors Can Improve Better Retiree Outcomes and Plan Metrics in 2021

And only 23% of employees surveyed felt that their employers were making “a significant effort” on financial health, and only 20% of employees felt the same about retirement planning.

What could explain this inequality in the recognition of employers’ initiatives after the pandemic? In the midst of COVID-19, we have all understandably been bombarded with health and safety news reports, and as a result, of course, employees are becoming more aware of health and safety notices from employers and health plan providers. Employers also likely sent more messages about employee health and safety during this time.

This is not intended to diminish the plan sponsors’ efforts to help participants improve their financial well-being and retirement benefits. But at a time when people are naturally more attuned to health and physical wellbeing notifications, employers can still take steps to ensure their employees are more aware of their wellbeing programs in their financial lives.

These actions don’t have to be direct or selfish. Plan Sponsors can use “Nudge Theory” to give attendees the extra kick-start they need to begin the process of consolidating their 401 (k) accounts or resisting the temptation of an early withdrawal.

Nudge theory was introduced in the 2008 book Nudge: Improving Decisions About Health, Wealth, and Happiness by Richard Thaler and Cass Sunstein. but without prohibiting other options or changing economic incentives.

The authors point out in the book: “To be considered a mere impulse, the intervention must be easy and inexpensive to avoid. Nudges are not mandates. Placing fruit at eye level is considered an impetus. The ban on junk food is not. “

Plan sponsors can “nudge” participants to improve their financial wellbeing by consolidating their previous employer’s 401 (k) accounts into their active accounts and not making withdrawals. For example, sponsors may include content such as: “And while we’re on the subject of health and wellness, we’re here to help you improve your financial health and wellness. Talk to us about how you can transfer your 401 (k) savings from previous employers in our plan to your 401 (k) account. “

Another financial well-being message included in health and safety communications could remind employees: “Times are tough for all of us right now. But when you cash out your 401 (k) savings to meet emergency expenses, your financial health and retirement provision will be impacted across the board. 401 (k) withdrawals should only be made as an absolute last resort. Talk to us about why. “

These messages can also include attention grabbing stats to bring those points home for plan participants, such as “401 (k) Payouts Can Reduce Your Overall Retirement Savings by an Average of 25%, According to the Center for Retirement Research at. Boston College. “Another behavioral message might be,” If you leave your 401 (k) savings in your former employer’s account, over $ 2,000 in credit may lose over $ 2,000 in account fees in the long run – but if the balance is below $ 5,000 your savings could automatically be turned into a costly, low-income investment vehicle. Talk to us about consolidating your 401 (k) savings now. “

Another message to influence attendees behavior (to reduce lost and missed attendees) could be, “If you’ve moved, make sure our 401 (k) plan recorder has saved your new address. Failure to keep your address up-to-date could affect your retirement savings. Talk to us to find out more. “

These nudges can also be published on the digital notice boards of plan sponsors as well as on the homepages for employees on performance portals or on websites for plan recorders.

When we return to our offices after a pandemic, these prompts may appear on regular employee notice boards along with health and safety notices.

It doesn’t take much to help employees become more aware of their employers’ financial wellness initiatives. Subtle nudges from sponsors can make a huge difference in the retirement planning and overall financial health of their plan participants.

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