With over 20 years of experience in the 401(k) industry, we’ve seen a lot of new ideas and innovations. The one that seems to be constantly evolving and improving is the delivery of participant education.
In the 90’s, if participants were provided a website where they could view their balance and make a fund change, you were doing well. As time progressed, so did the functionality of the record keeper websites. Now online loans and enrollment, financial modeling and forecasting, one-click rebalancing, and improved personal rate of return information have become standard for most vendors today.
As the industry’s knowledge of behavioral finance increases, technology adapts right along with it. This has allowed vendors to create websites that are tailored to participants who are much more willing to do things online than generations past. This would include the development of smartphone apps and social media.
But does the increased functionality of a vendor’s website correlate to better participation rates and higher deferral rates? The jury seems to still be out on that one, but there are some encouraging signs. When participants do actually visit a vendor’s website or use the mobile app and it’s easy-to-navigate and implement instructions, engagement is high. The problem is getting people to actually visit the website or use the app. This has been the struggle since the beginning of the industry — getting participants to actively engage.
If you surveyed most 401(k) record keepers, you would find that the percentage of participants who actually visit the website and click beyond the first page is fairly low — likely between 20% and 30% and in some cases lower. This has nothing to do with the power or functionality of the website and everything to do with participant inertia. A large percentage of participants will simply not engage regardless of how amazing a website’s functionality is.
In our experience, the best way to engage with the majority of participants is face-to-face. If you can meet with them in a group or one-on-one setting and encourage them to make a decision—either the decision to enroll, to raise their deferral percentage or properly allocate their investments—the effectiveness of the 401(k) plan goes up. For most employees, once you meet with them in person and get them to respond in a positive manner, that inertia can work in their favor.
The continuing evolution of technology is a good thing. And as more participants become familiar with the vendor’s technology, perhaps we will see higher utilization of these tools. However, it’s still hard to replace the effectiveness of human interaction.