Reinventing retirement education in the workplace

September 9, 2013

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Rebecca Katz

Rebecca Katz
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Increased use of auto features and breakthroughs in web-based technologies are transforming retirement education in the workplace and making it easier for participants to save for retirement, according to Rebecca Katz, a principal in Vanguard Participant Strategy and Development.

"Retirement education in the workplace is entering a new stage where smart automatic features play a prominent role and where every aspect of communications is being transformed by the web and mobile devices," Ms. Katz said. "As a result, retirement education is becoming more focused on helping workers take action and make wise decisions at key points in their lives."

Catalysts for change

Traditional retirement education in the workplace had relatively simple objectives:

  • Communicate the benefits of a defined contribution plan to new hires.
  • Communicate plan changes such as a new recordkeeper or new plan options to existing employees.
  • Help departing employees with distribution options.

But behavioral economics has shifted the terms of the debate. Autoenrollment and autoescalation on the savings side as well as target-date funds, managed accounts, default options, and reenrollment on the investment side have produced large-scale behavioral change in plans adopting these features. And this change is more rapid and sustained than education typically has been able to deliver.

Ms. Katz pointed out that one of the benefits of automatic programs is that sponsors can spend less time and money convincing younger workers to join their retirement plan. This allows sponsors to redirect tight education budgets to key retirement decisions that aren't amenable to defaults.

In these circumstances, Ms. Katz stressed that education needs to be available when participants are ready to act to help provide information and frame choices. This is particularly true for participants in their 40s, 50s, and 60s who are closer to retirement and tend to have larger balances and a greater need for education at critical points in their lives.

The increasing use of auto features in plans and their success in boosting plan enrollment and diversifying portfolios also is shaping how Vanguard and sponsors approach retirement education in plans that don't offer these features.

"For too long, the retirement industry has focused on trying to get people to learn by inundating them with education materials on financial issues," Ms. Katz said. "From the success of autoenrollment and other defaults, we have discovered that most workers just want to know the one or two actions they need to help get them on the right track."

A more consumer-driven approach

Because of the changing landscape, Ms. Katz noted that Vanguard has been retooling its retirement education programs for plans to make them more focused on the important decisions that workers need to take. And new web-based technologies are a key driver in making these changes work.

For example, Vanguard recently initiated a new Enroll Now feature on its participant website for plans that don't offer autoenrollment. As the first step in getting workers to participate, this new tool recommends a specific deferral rate, step-up rate, and investment strategy, such as a target-date fund. The only action workers have to take is to accept these recommendations and they will have enrolled in their plan.

"With Enroll Now, workers don't have to spend a lot of time learning financial terms and other minutiae; the feature just tells them what they need to do," Ms. Katz said. "While participants can still make other selections, Enroll Now makes it easier for them to make wise decisions by putting the recommended solution upfront."

As one of the first investment providers to allow participants to use mobile devices to initiate transactions through mobile applications, Vanguard is also leveraging the widespread use of smartphones and other devices to inform participants of important retirement decisions.

While the web and mobile devices are great ways to communicate with workers on the importance of saving for retirement, Ms. Katz said that another important advantage of these tools is that they create a scientific approach to workplace education by measuring self-selection bias, using randomized control trials, and evaluating effectiveness in an unbiased way.

"Just as consumer marketing companies have developed effective strategies through the data they collect and information they receive about their customers through web-based technologies, the retirement services industry needs to do exactly the same to encourage workers to save more and take other important steps," Ms. Katz said. "We have collected a lot of data about our participants and we are using it to target participants with the information most relevant to their personal situation."

Three critical ingredients for effective retirement education

Ms. Katz expects retirement education in the workplace to become even more targeted and relevant to the lives of workers as plan features and web-based technologies become more sophisticated. She noted that effective retirement education in the workplace depends on three factors.

  • Understanding participant needs and targeting specific populations in ways that feel personal to them.
  • Using scientific rigor in developing effective communications strategies by regularly testing and measuring outcomes.
  • Incorporating behavioral finance principles that make it easier for workers to save for retirement and make other wise decisions.

"We're seeing a change in mindset from promoting simple awareness to getting workers to take specific actions," she said. "What's most important is developing effective communications that help workers make sound choices and determining the specific communications that will work most effectively to support specific populations."


  • All investments, including a portfolio's current and future holdings, are subject to risk, including the possible loss of the money you invest.
  • Diversification does not ensure a profit or protect against a loss.

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