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Behavioral Design Guide: A Financial Health Approach to Employer-Sponsored Retirement Savings Plans

Learn how to design employer-sponsored retirement savings plans that support worker financial health by improving participation, savings behavior, and savings balances.

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By Hannah Gdalman, Riya Patil, Zaan Pirani, Heidi Johnson

Friday, September 20, 2024
Behavioral Design Guide: A Financial Health Approach to Employer-Sponsored Retirement Savings Plans
The Challenge

Workers Struggle To Save Despite Having Access to Employer-Sponsored Retirement Savings Plans

Americans commonly access retirement savings tools like 401(k)s and 403(b)s through their employers. Despite the availability of such tools, many people struggle to save enough for retirement — a burden that weighs most heavily on women, Black, and Latine workers.

Only 39% of households are confident they are on track to meet their long-term financial goals.

The Opportunity

Design Retirement Plans That Support the Financial Health of All Employees

Designing retirement plans that address key barriers to participating in and contributing to retirement accounts can boost employees’ financial health and help close racial, ethnic, and gender gaps in retirement savings. Offering retirement plans that support financial health is also key to attracting and retaining top talent:

    • 76% of workers say it’s important to have a job that offers employer-sponsored retirement benefits1
    • 60% of workers are more likely to stay with an employer who offers a retirement savings plan2
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Behavioral Design for Employer-Sponsored Retirement Plans

Behavioral science is a powerful tool for employers to design retirement savings plans that maximize enrollment and savings. This guide offers employers, policymakers, retirement advisors, recordkeepers, and innovators: 

    • Insight into the behavioral science principles shaping the design of employer-sponsored retirement savings plans
    • Specific recommendations for designing behaviorally informed retirement savings plans
    • Spotlight ideas that take behavioral science recommendations to the next level

Behavioral Design in Action: Default Contribution Rates

A low default contribution rate can act as an anchor that draws down the amount people choose to save toward retirement. Research indicates that pushing the boundaries with higher default contribution rates during enrollment can draw up the amount people choose to save without harming plan participation. A study with Voya Financial tested contribution rates ranging from 6% to 11% of employees’ salaries and found that, overall, higher defaults led to higher employee savings rates two months later, with only the 11% contribution rate being associated with a slightly increased chance of employees opting out of plan participation.3

By understanding what drives employees’ retirement savings behaviors, employers can design retirement savings plans that work with cognitive biases and mental shortcuts to promote financially healthy decision-making.

Our Supporter

This guide is made possible through the generous support of MetLife Foundation, a founding supporter of our financial health work.

Endnotes
  1. Juliana Menasce Horowitz & Kim Parker, “How Americans View Their Jobs,” Pew Research Center, March 2023.
  2. “Amid the war for talent, don’t forget the retirement plan, Voya survey finds,” Voya, November 2022.
  3.  John Beshears, Shlomo Benartzi, Richard Mason, & Katherine L. Milkman, “How Do Consumers Respond When Default Options Push the Envelope?,” University of Pennsylvania – The Wharton School, October 2017.

Explore Our Behavioral Design Guides

Our Behavioral Design Guide series compiles rigorous research to provide product managers, designers, and strategists with a behavioral framework for building financial health products. Read other guides from the series here.

Written by

Hannah Gdalman

Hannah Gdalman

Senior Manager, Financial Services Solutions
Financial Health Network
Riya Patil

Riya Patil

Senior Associate, Workplace Solutions
Financial Health Network
Zaan Pirani

Zaan Pirani

Manager, Financial Services Solutions
 
Heidi Johnson

Heidi Johnson

Senior Director, Behavioral Economics
 

Behavioral Design Guide: A Financial Health Approach to Employer-Sponsored Retirement Savings Plans

Explore the trends. Discover new insights. Build stronger strategies.

Download the Guide