Chief Investment Officer

CIO: Can you give us an example of where plan sponsors aren’t getting their message across and perhaps undermining their own hard work?

DeMoss: Customized investments aren’t promoted enough by the plan sponsors who are using them. A lot of larger plan sponsors have built custom target-date funds or white-label portfolios that are significantly less expensive than what their participants could get anywhere else, and that a smaller employer wouldn’t be able to put together at all. They’re a higher-quality product, too, and we’ve found that participants really appreciate that. But you need to be telling them about that, and reminding them of the ongoing value of your plan, from the get-go—especially if you’re trying to get participants to stay in your plan during retirement, which most plan sponsors are these days. Then, when participants get into retirement, they understand that rolling over to a higher cost IRA may not be the best idea.

CIO: How are you getting all these messages out to plan sponsors?

Jenkins: We’ve published some of our findings, of course, but in terms of working with individual plan sponsors, we get a lot of demand after speaking at conferences. Once a sponsor has heard us speak, they’ll sometimes come to us afterward and ask for help with a particular project. Maybe they’re planning a re-en-rollment or an overhaul of their investment menu. Whatever the case, we’re happy to do it. This isn’t a revenue-generating service for us. We’ll conduct what we call a “Word Lab” with them. We spend about half a day with the sponsor, study their participant materials and website, train their staff on the right and wrong things to look for in communications, and teach them the principles we learned in our research. When we leave, they are better equipped to make these decisions on their own.

CIO: Tell us a little bit about how you conduct your studies.

DeMoss: We start out by doing a set of in-depth interviews with plan sponsors and consultants to figure out what challenges they’re facing. During this phase of the process, we’re also looking to determine what language is being used by the financial services industry at that time, so that we know we’re current. Next, we conduct three separate focus groups in which our researchers measure investors’ emotional responses to words using an instant dial-response technology. We’re not asking, “Do you like this or not?” Rather, we’re asking, “How do you feel about that?” We do these in three different cities, each with different demographics. Each focus group is generally about three and a half hours long, and there are about 30 people in each one. Finally, we do an 800-person survey to validate what we found in those three separate dial sessions.

CIO: Does your research have equal applicability to plan sponsors of all sizes? What about defined benefit plans?

Jenkins: Many of the key tenets of this research are rooted in human psychology and apply no matter the size of plan. As for defined benefit plans, we did a Word Lab session for a very large client that operates both a defined benefit plan and a defined contribution plan, and their defined benefit team felt they got as much out of it as the defined contribution team. They were undertaking a campaign to get their participants to appreciate the value of having a defined benefit plan, which of course is expensive and a huge liability for the employer. Nonetheless, they’re sometimes underappreciated; participants don’t know what they’re worth.

CIO: Using language that results in more informed plan participants obviously has benefits for them. What are some of the benefits to plan sponsors?

DeMoss: We mentioned earlier the idea of keeping retirees in the plan, which helps to maximize plan assets and bargaining power with vendors. Using the right words also provides clarity to participants, which leads to confidence. They’re confident about themselves, they’re confident about their organization, and they feel better. People who feel like that are more likely to stay on the job, which can help reduce turnover costs. They also are less likely to be worried about their finances, more likely to be able to retire on schedule and, probably, more productive.

CIO: Where do you see your work heading next? And is there anything you can tell us about what you’re working on right now?

DeMoss: We have a study underway in which we’re focusing on larger employers, which is important because we find that participants working for large organizations have different and higher expectations of their employers and their retirement plans than participants working for small employers. We’re trying to uncover those differences, and we’ve already found a few, including how participants think about costs. We’re finding that they do not fully

Key words to use when
communicating with participants
When it comes to the costs
of investing, what kind of fee
arrangement do you prefer?
One that is...