At the recent DCIIA (Defined Contribution Institutional Investment Association) Academic Forum, Britt Huber from Kiva was asked to share her insights on the behavioral economics aspects of the Retiremap platform with 350 industry professionals.
Kiva is the first plan sponsor to implement Retiremap in iPad® workshops and Britt, the VP of HR, joined a panel of academics to discuss the practitioner’s perspective on how behavioral economics can be used to improve participant outcomes.
Britt spoke about how Retiremap worked with leading behavioral economist Dan Ariely to develop its engagement process and the impact that it had with Kiva’s employees.
The slides below (that’s Prof. Ariely dressed as a bee) are an expanded version of what Britt covered in her presentation and highlight the key areas where Retiremap employs behavior economics/finance principles to get employees thinking about improving their situation and then encouraging them to take action. The slides also highlight Boulevard R’s initial approach and how we modified it by working with Prof. Ariely to create the engagement process.
In addition to Britt’s presentation, there were two other panelists whose work we found interesting and worth highlighting:
James J. Choi, Yale School of Management
Prof. Choi spoke about several topics which were highly relevant to boosting employee savings rates.
￼￼His presentation on his research highlighted two things:
- While automatic enrollment is a powerful way to get employees participating in a defined contribution plan, 24 months after auto-enrollment, approximately 40% of employees are no longer at the default contribution rate. Presumably most dialed down the deferral rate, through we weren’t clear what percentage might have actually increased their rates.
- Since a lot of employees opt-out of the default over time, savings cues are powerful ways to influence how much employees save, to get them back on track. Prof. Choi gave the following savings cue messages that were given to employees:
- 1% Anchor Cue
“For example, you could increase your contribution rate by 1% of your income and get more of the match money for which you’re eligible. (1% is just an example, and shouldn’t be interpreted as advice on what the right contribution increase is for you.)”
- $11,000 Goal Cue
“For example, suppose you set a goal to contribute $11,000 for the year and you attained it. You would earn $X more in matching money this year than you’re currently on pace for.”
- 1% Anchor Cue
The result was that with the 1% Anchor Cue, employees actually reduced their savings rate, while with the $11,000 Goal Cue, they significantly increased their savings rate, even if it was just for about 6 months.
Daniel G. Goldstein, Principal Researcher, Microsoft Research & London Business School
Prof. Goldstein’s research is probably familiar to anyone who follows different strategies to get employees to save more, since it is unique in it’s approach. Basically, he’s developed a tool to show you how your future, older self looks as a prompt to make your retirement age and the aging process more tangible, thereby increasing the motivation to save more for the future.
Based on Prof. Goldstein’s experiments, he stated that those people who saw a picture of their older selves saved roughly twice as much.
The challenge here, is that just like people don’t like to be reminded that they’re overweight, they also don’t like to be reminded that they’re going to get old (and die). So the challenge is getting HR and benefits folks to put their employees in an uncomfortable situation of visually modeling their old age. Also, for folks 5 years from retirement, the simulation probably won’t be much of a contrast. Here’s an example:
One aspect that doesn’t come across in the image above is that the facial expression of the “older self” got happier the more the savings rate increased, while inversely, the “younger self” got sadder the more the savings rate went up. Maybe it would work even better if the “younger self’s” facial expression was kept static, so that it didn’t betray the trade-off.