Key Principles for DC Plan Communications: Keep It Light, Candid and Action Oriented

Success in building a retirement income stream starts with straightforward participant messaging.

Saving for retirement is a long road dotted with periodic bumps and curves, such as today’s economic and political uncertainty. In harsh markets, defined contribution (DC) plan sponsors can be doubly challenged to keep anxious participants focused on timeless investing disciplines.

Sponsors also face a deficit when it comes to participants’ understanding of their plan’s offerings. Such misconceptions not only crimp overall participation levels but also raise the likelihood of knee-jerk reactions to volatile markets.

Good communication is the most powerful countermeasure to such challenges, in our view. It can calm participant anxieties in down markets and make the complex world of retirement planning much more accessible in general.

We believe a few time-tested best practices can help sponsors make participants more aware and engaged. 

Be Candid About Market Impacts—Good and Bad

Participants want to understand their investment’s performance in any environment, but especially during volatile cycles. Don’t downplay bad news, but do show empathy about its impact on their savings. Financial wellness programs that supplement retirement plan education are a great way to deliver this balance.

We think financial wellness initiatives are as important as ever, because more participants seem unfamiliar with even basic plan terminology, according to AllianceBernstein’s latest Inside the Minds survey. For example, only 51% of respondents knew what “auto enrollment” means, while just over half were familiar with “rollover” (Display). We’ve generally found that regularly communicated topics aren’t necessarily fully understood, while confidence, focus and engagement usually improve when they are. Effective messaging is key.

Encourage a Well-Grounded View, Especially in Volatile Markets

Acknowledge that it’s normal to want to cut and run when markets drop, but remind participants that no one can predict the next uptick. Show them how selling while markets and investments are down can hurt twice: first by locking in today’s losses, then by missing out on the eventual recovery.

One powerful way to reinforce this concept is by using relatable examples to compare the cost of missing out on the market’s strongest cycles with just staying the course, as well as the cost of sitting on the sidelines for too long. Plan partners such as advisors, consultants and recordkeepers can help—many have “stay invested” content at the ready.

Apply Four Basic Principles to Every Communication Touch Point 

When people are bombarded with daily messages, it’s natural to tune out quickly. We believe plan sponsors should account for this, capturing and holding participants’ attention better by applying four basic communications principles.

Use Straightforward Terms: Financial industry jargon can be off-putting. In our experience, transparent and pragmatic language leaves more positive and lasting impressions. For example, the word “stocks” is more recognizable than “equities,” much like “bonds” is better known than “fixed income.”

Be Visual: Retirement planning topics are complicated but explaining them doesn’t have to be. If the content allows for it, tell the story in pictures. A chart or infographic can have greater impact than a text-saturated page. Using different media also taps into diverse visual preferences, so vary messaging across web pages, videos, print, social media and the like, to cover all the bases.

Highlight Key Points: Plan communications often mandate a lot of fine print; highlighting select points is a valuable time saver. Feature the most important takeaways first, up top and possibly bolded, followed by the more comprehensive information. Subheads offer “mental pauses” too and help audiences absorb the content’s scope at a glance.

Provide a Simple Call-to-Action: End each message with obvious next steps for participants, whether it’s making an investment election, contacting their advisor or using a financial wellness tool. If a call-to-action isn’t practical, substitute key takeaways.

Recognize Where Extra Focus Could Help 

Sometimes even the most practical and central retirement focal point needs clear messaging behind it. For example, most retirement plans use target-date funds as their qualified default investment alternative—about 85% of them as of 2022, according to the Employee Benefit Research Institute.

Despite this prevalence, plan participants are still fuzzy on target-date characteristics. For instance, 70% of respondents in our survey incorrectly believe these solutions are FDIC insured, and two-thirds think they hold 100% cash at retirement. The lack of clarity is concerning, but given time, we believe that consistent use of the four principles above can clear that hurdle.

Putting it all together, DC plan participants shoulder most of the burden in ensuring adequate retirement income. Saving regularly or investing wisely can be stressful enough, and bouts of market volatility only add to the pressure. But most difficult tasks can be tackled with effective solutions, the right tools and a little help. Plan sponsors can provide all three, with simple and relatable messages that educate and motivate.