Simply communicating retirement plan information better could affect how well workers prepare for retirement, a researcher testified recently on Capitol Hill.
Julie Agnew, a finance professor at the College of William and Mary, talked about the importance of clear, simple retirement plan disclosures at a recent retirement decisions hearing organized by the Senate Committee on Health, Education, Labor and Pensions.
"Unfortunately, the evidence related to financial literacy in the U.S. is grim," Agnew said, according to a written version of her testimony provided by the committee. "Many Americans lack basic 
financial knowledge. A large number cannot carry out simple interest-rate calculations, let alone correctly answer questions about asset types."
Researchers have found, for example, that only 37% of consumers surveyed understood that high-yield bonds funds were not invested in bonds with strong credit ratings.
Workers also are confused by their own plans, and many are not clear whether they are participating in their employers' retirement plans or have opted out, Agnew said.
When Agnew and colleagues surveyed employees who had opted out of automatic enrollment 401() plans, they found that 18% of the participants who had quit did not realize that they had stopped participating, even though they had made an active choice to opt out of the plans, and 8% were not sure of their status.
"Plan sponsors must clearly explain the benefits of their plan to both non-participants and participants and must periodically remind all employees of the personal choices they have made," Agnew said.
Agnew said she favors improving overall consumer financial literacy by starting financial education early on in elementary school and repeating the important themes with age-appropriate lessons on through the college years.
"In addition, making instruction and information easily available to Americans when they experience important life events, such as a marriage or a death in the family, could capture people when they are most interested and motivated to learn," Agnew said.
Jeffrey Brown, a finance professor at the University of Illinois at Urbana-Champaign, talked about strategies for increasing worker interest in life annuities.
When consumers are viewing life annuities through the frame of wanting to accumulate wealth "life annuities look relatively unattractive," Brown said. "They may even look risky, because the amount of money that one receives depends on how long one lives."
When consumers view life annuities through a frame that emphasizes the ability to sustain
monthly consumption during retirement, "life annuities are quite attractive because
they can guarantee this outcome," Brown said.
When Brown and colleagues conducted a consumer survey, they found that only 20% of consumers said they liked the idea of buying a life annuity when they viewed the product through an investment frame. When they viewed life annuities through a consumption frame, 70% said they liked the idea of buying the product.
"This is a remarkable shift for what is essentially a small change in the way the information is portrayed," Brown said. "This research has led me to believe that one simple, but potentially very powerful, way to encourage annuitization is to change the way that plan sponsors communicate about participants' 401(k) plans. Put simply, rather than focusing solely on how much wealth one has accumulated in their plan, we should be telling people how much retirement income their account balance will be able to
provide them."
Lawmakers recently introduced S. 267, the Lifetime Income Disclosure Act bill, a bill that would require 401(k) plans to notify participants about the lump-sum value of their accounts and the amount of lifetime income that their accounts might generate at retirement. The bill is similar to a plan disclosure bill introduced in 2009.
"If enacted, this legislation could have – over time – a very significant impact on the way individuals evaluate
their preparedness for retirement," Brown said.
The American Council of Life Insurers, Washington, reacted to the hearing by putting out a statement praising Brown's testimony and emphasizing its support for S. 267.
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