Pointing out that “plan participants now typically make their investment choices on a screen rather than on paper,” Shlomo Benartzi writes about an experiment he and Richard Thaler conducted. (Photo: Shutterstock)
It seems counterintuitive, but the design of the website used by participants to make investment choices as well as other decisions in their retirement plans can have an outsize effect on those choices — and on the outcomes for those retirement savers.
A paper by Shlomo Benartzi, UCLA professor and senior academic advisor at the Voya Behavioral Finance Institute for Innovation, finds that such factors as how many lines are provided for investor choices of funds can result in vastly different results from, say, four to eight.
“The Digital Fiduciary: Overseeing Retirement Plans in the Digital Age” points out that it's no longer enough to make sure that the investment choices provided to plan participants are appropriate – plan sponsors also need to consider how participants behave in the digital age.
Pointing out that “plan participants now typically make their investment choices on a screen rather than on paper,” Benartzi writes about an experiment he and Richard Thaler conducted on Morningstar.com.
Two groups of Morningstar subscribers, he says, were asked to allocate their retirement savings among eight different funds – one group was offered only four lines for choices, although there was a link if they wanted to add more. The other group was offered eight lines.
The results were dramatically different for the two groups, writes Benartzi. “While only 10 percent of people shown four lines selected more than four funds, that number quadrupled among subjects given eight lines.”
That means, he adds, that diversification was driven more by the way the site was designed than by participant consideration.
The report went so far as to say that website design could be as important to retirement security as the success of one's investments — that the decisions made about retirement plans are made online, often quickly, and design can influence them, perhaps, for better or for worse. Everything from negotiating the setup screens (password, login ID) to which rate at which to save can present challenges that website design can make easier or more difficult for participants.
And even the decision about whether or not to withdraw funds can be influenced by the website—and screen—design.
Not optimizing a retirement website, the paper adds, “is itself a choice. It's just probably not a good one.” And there are legal liability issues, since dissatisfied plan participants are more likely to resort to legal action against plan fiduciaries.
READ MORE:
Complete your profile to continue reading and get FREE access to BenefitsPRO, part of your ALM digital membership.
Your access to unlimited BenefitsPRO content isn’t changing.
Once you are an ALM digital member, you’ll receive:
- Breaking benefits news and analysis, on-site and via our newsletters and custom alerts
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical converage of the property casualty insurance and financial advisory markets on our other ALM sites, PropertyCasualty360 and ThinkAdvisor
Already have an account? Sign In Now
© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
Marlene Satter
Marlene Y. Satter has worked in and written about the financial industry for decades.
