Knowledge is power — but only if it’s used. So, how do you break through and help employees “get it” when it comes to retirement planning?
There are all kinds of variations on the group retirement theme: defined benefit (DB), defined contribution (DC), hybrids and even no pension plan at all. There are also different stages of life and careers, from young employees drowning in debt to mid-career employees trying to raise a family and long-service employees fearing the onset of retirement.
And then there are the blank faces of plan members — confused and uncomprehending when confronted with financial mumbo-jumbo.
But communication doesn’t happen in a vacuum, and it’s important to base educational work on holistic principles. The technical details need to be tackled, but you also need to touch on a broad range of human issues, such as health, relationships and time management. It’s about putting the pension dollars into context before delving into the weeds.
And context is key — the pension message is added to all the other messages and, without context, it’s just more noise. It will be tuned out.
People only use the power of knowledge when they recognize a purpose — when they see how the information fits into their lives. It is vital to connect the dots and integrate raw information about the future into present day reality, so HR needs to know the concerns and priorities of its audience.
If knowledge is power, what about ignorance and misinformation? Ignorance may be weakness, but misinformation can be dangerously destructive. It’s impossible to teach something if a person thinks she already knows it.
If the audience is convinced it’s right about something important that simply is not true, that’s where to start. Regardless of how you simplify or which media is used, there’s no use jumping straight in and telling them what you want them to know if you have not dealt with the misinformation.
Some popular misconceptions that can derail the message are so widespread they fly under the radar — embedded as assumptions. Here are some examples:
“It takes at least $1 million to retire.” Maybe, maybe not. Canadians are constantly reminded to save for the future even as we finance current consumption with debt.
The consequence of this is many will consider the savings goal to be too far out of reach and put the whole business out of their mind — essentially giving up.
“I’ve got to choose the best fund or I won’t have enough.” This is one of the most pernicious traps. Objectively, if it’s defined by rate of return, having the “best” fund is a goal most people will not achieve. Most of us will receive average returns, especially over a multi-decade time period. The danger, of course, is that in pursuit of the so-called “best” fund, employees will chase last year’s performance and enter a permanent cycle of buying high and selling low. The end result is a mixture of hope, fear and regret — and chronic below-average performance.
“It’s all about the rate of return.” This one is closely aligned with the chase for the best fund. There is a certain irony in our laser focus on the one factor in the retirement equation over which we have such little control. Somehow, we expect a great rate of return to solve all of our problems and make the math work out when we have invested too little capital for too short a period to make the numbers match our dreams.
So, what can an employer do? Here are a few ways to successfully open the conversation.
• Let employees know where you are coming from.
• Don’t allow the message to be seen as an exercise in marketing.
• Show employees you understand what’s on their minds.
Also consider: Have you complied with article 2.1.1 of the Guidelines for Capital Accumulation Plans? Do your plan members know the purpose of the plan?
Tell employees what’s in it for you and you may convince them there is also something in it for them. In short, give them reasons to sincerely believe your message. HR’s job may require it to live and breathe the retirement plan, but that’s hardly the case for plan members.
This may be the only group retirement plan they’ve ever been in. Unlike you, they may be operating on pure ignorance — or on assumptions derived from their father’s pension plan.
There’s often a tendency to try to “sell” the plan. After all, it is a competitive, well-thought-out program run by top-level service providers. You may believe the plan is the best possible deal for employees, but they may not start from the same perception.
Moreover, Canadians seem to be innately sensitive to any perceived sales pitch. It makes them suspicious. They immediately discount whatever is said, sensing there is an unspoken agenda and they need to be guarded in how they respond.
Getting the conversation started
Tell employees there are lots of different ways to approach the day they will retire:
“We can try to make all of the decisions, designing a plan that we, in our wisdom, believe is just what you need. We could back away and let you do it all yourself. Or, we could do what we do best and leave room for you to tailor the plan to your personal needs, circumstances and preferences. We chose the last option.”
Tell them how the process can be made easier through:
• payroll deductions for convenience
• group buying power to lower costs
• professional shopping to pre-select investment options.
Basically, tell employees: “We know that it’s hard enough these days to earn a living, never mind becoming some kind of investment expert able to build a retirement nest egg during uncertain economic times. That’s why we put together a simple way you can get your retirement plan started.”
That leaves room for them to decide the level of risk and reward they want to shoot for.
Christopher Cartwright is president of the Financial Education Institute of Canada in Whitby, Ont. He can be reached at (514) 933-5687 or firstname.lastname@example.org or, for more information, visit www.feic-icef.ca.