Website design affects 401(k) participants' decisions
How plan sponsors and recordkeepers design retirement websites can influence contributions, allocations.
Website design isn’t about making things look pretty—it can be a powerful tool to help employees make better decisions about benefits.
Two professors writing for the Harvard Business Review analyzed how variations in digital design influenced the initial contribution decisions of employees in 401(k) plans, as well as how subscribers allocated their retirement savings among different funds and how U.S. consumers choose health plans.
Their conclusion? Design is not just a “visual garnish,” but instead is “an integral part of any product or service offering. And it’s possible to navigate a path to behaviorally informed designs,” wrote Shlomo Benartzi, a professor of behavioral decision making at UCLA Anderson School of Management and Saurabh Bhargava, an associate professor of economics at Carnegie Mellon University.
The professors outlined their recent research looking at 401(k) contribution decisions by more than 8,500 employees across several hundred plans.
Their goal was to find a website design that induced employees to contribute more than the default rate, since that’s often not enough for people to achieve financial security in retirement.
They randomly assigned employees to one of two versions of an enrollment interface — a standard commercial design used by research partner Voya Financial or an “enhanced” design with three small changes.
First, they changed the color scheme from all-orange to a traffic light arrangement of green (personalize), yellow (confirm), and red (decline).
They also displayed the plan’s default rate directly on the enrollment screen.
Finally, they simplified and standardized the language to describe each option. “I want to enroll with different choices” became “Do it Myself,” while “I do not want to enroll” became “I Don’t Want to Save.”
They found that these design changes increased the rate of personalized enrollment by 15%.
That’s significant because employees who personalize enrollment tend to contribute nearly twice as much—7.8%—as those who automatically enroll, who contribute just 3.4%.
“[T]he shift to personalized enrollment significantly increased savings for those employees and reduced the share of workers headed for ‘retirement poverty,’ the professors wrote. “Ultimately, we estimate that the design changes led to an increase in overall contributions equivalent to increasing the typical plan match by over 60%. Of course, changing colors or a few words on a screen is a lot cheaper than sharply increasing matching incentives.”
The professors also looked at a Morningstar.com experiment, where two groups of Morningstar subscribers were asked to allocate their retirement savings among eight different funds. Group one was shown a website with four blank lines plus a hyperlink for more choices, while group two got eight blank lines.
The result? A mere 10% of people shown four lines picked more than four funds, but that number quadrupled among subjects given eight lines.
They also looked at research on how people picked health care plans under the Affordable Care Act. They found that the current design of the ACA, where plans are labeled “bronze, silver and gold,” leads to inefficient choices.
“We speculate that when faced with the tiered labels (bronze, silver, etc.), consumers selected plans not based on expected utilization, but inferences about the quality of care they would receive,” they wrote, adding that “In the case of health insurance plans, labels should serve as signifiers of expected utilization rather than quality.”
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