Digital design matters, according to new research from Voya Financial’s Behavioral Finance Institute for Innovation—indicating that just small changes in a retirement plan’s enrollment website can drive positive outcomes.
The working paper titled “Save(d) by Design” presents results from a field study by scientists from Carnegie Mellon University, City, University of London and UCLA that evaluated results from workers visiting enrollment websites for auto enrollment into their employer-sponsored 401(k) plan.
Three small changes in design, the study found, spurred larger changes in employee behavior. The three changes moved key plan information, such as the default savings rate, closer to where employees are prompted to act; simplified and standardized language around enrollment options; and changed the color design on election buttons to three “traffic light” colors.
Simple as those three changes might sound, they resulted in three improvements in employee behavior that were far from small, spurring a 15% increase in personalized enrollment (those who personalized contributed on average 7.8%, compared with those who stayed at the auto enrollment rate of 3.4%); a 19% increase in employees taking full advantage of a company match; and a 10% increase in savings levels.
That last result alone boosted the average contribution rate by 62 basis points, or approximately 10% across all digital enrollees. The study explained that “[T]hat lift was equivalent to what one would expect from increasing the typical employer match by 62%.”
“Because employees don’t often adjust their initial contribution rates after enrollment, these initial increases due to digital design can lead to meaningful improvements in long-run retirement security,” Dr. Shlomo Benartzi, UCLA Anderson School of Management professor and a senior academic advisor to the Voya Behavioral Finance Institute for Innovation, said in a statement.
Benartzi added, “The most compelling result was the shift toward personalization. When people personalize their plan choices, it suggests that they are being reflective and thinking about the best possible solutions for themselves. So it is great news that digital design enhancements can help increase the percentage of people who personalize their savings decisions.”
The study results suggest that employers can adjust online enrollment architecture and achieve results comparable to substantially increasing their match program.