Better Behavior Through Complication
Want to avoid doing certain things? Put more obstacles or steps in between you and the behavior you want to avoid.
Want to make sure you do certain things? Clear a path to it.
This is the thesis of a blog post I read recently about choice architecture and environment design. (Never mind that it was about healthy eating.)
This concept plays out over and over again with retirement plans!
Take participation rates and plan enrollment, for example. Traditionally we gather employees in a room, explain the plan with a powerpoint presentation that is crafted to be both educational, entertaining, and delivered in fewer minutes than the length of a sitcom. We hand out materials with enrollment forms. Sometimes we hand out pens too. Then the real fun starts.
If you survey employees on the way out, the majority will tell you they're going to enroll. If you check the numbers 3-6 months down the road, you'll see that a lot of people never got around to turning in their forms.
You could tweak the process and have everyone fill out the forms together at the meeting.
Or, you just make it hard for them NOT to enroll instead...automatically enroll employees in the retirement plan, and make them jump through hoops to OPT OUT.
By removing obstacles like having to fill out a piece of paper, make decisions about how much to have deducted from the paycheck, and figure out which investments to use, you cut straight through the behavior you want. It's actually more effort to DECLINE the plan, which is overall what we prefer people do not do. It should come as no surprise that plans with automatic enrollment have higher participation rates (when a match is offered or not).
Several clients have changed over to allow loans to be taken online without much intervention from the plan sponsor. Guess which plans have more outstanding loans? Again, lowering the threshold of effort results in a different kind of behavior. In this case, one that can be detrimental to the ability to retire.
What's the point? If you want to get certain results from your employees or even customers, think about reducing effort to make that behavior the easy choice. Make it easy to schedule appointments or accept payments. Draft your forms to influence the choices made. Be strategic with your "default" choices.
If you'd like to review your process for enrolling or other behaviors surrounding your retirement plan, give us a shout!
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