PLANADVISER - January/February 2022 - 23

PRESENTATION IS EVERYTHING
I
t is increasingly apparent, as the use
of digital and mobile technologies for
employer-sponsored plans grows: The
way information is presented can significantly
affect engagement and outcomes.
Several studies-including by behavioral
economist Shlomo Benartzi, professor
at the University of California, Los Angeles
(UCLA), and senior academic adviser at the
Voya Behavioral Finance Institute for Innovation,
along with Richard Thaler, professor
at the University of Chicago and a founding
father
of
behavioral
economics-have
shown this. For example, offering visitors
to their plan's website eight blank lines on
which to list investment choices vs. four can help shape the
person's level of diversification. Also, enhancing the design
of an enrollment website was found to increase by 15% the
workers who personalized their enrollment and increase
by 10% contributions to the plan overall. And using an
online enrollment setting to suggest default-contribution
rates double and triple those typically suggested increased
savings rates without reducing enrollment.
Based on this, advisers and sponsors have a responsibility
to consider making use of websites and mobile
apps that encourage better retirement decisionmaking,
Benartzi says. His white paper " The Digital Fiduciary "
discusses how research in the field of behavioral science
supports the observation that digital resources can significantly
affect retirement decisionmaking, and introduces
the concept from which the title comes.
According to Benartzi, the Employee Retirement
Income Security Act (ERISA) infers that the obligations
of a plan fiduciary can be reasonably extended to
include the digital domain. " While ERISA went into effect
decades before the age of websites and apps, the legislation
contains a crucial provision, which is that fiduciaries
must act with diligence 'under the circumstances
then prevailing.' In the 21st century, these circumstances
certainly include online interactions, as most employees
will make their choices online, " the paper says. In addition,
Benartzi wrote, one of the best ways to minimize
legal liability, apart from fully complying with the law,
is to satisfy participants with their retirement
outcomes-satisfied participants are much less
likely to make claims against plan fiduciaries.
In a legal perspective appended to the paper,
Michael Hadley of Davis & Harman wrote it is
appropriate for a fiduciary to take into account
" whether the design of a plan's service provider's
electronic portal properly seeks to encourage and
facilitate good decisionmaking by plan participants
and beneficiaries. " Hadley said it is important
Having a
digital policy
statement and
being a digital
fiduciary can
affect clients'
outcomes
to use design elements that are " consistent
with the plan's character and [that] aim to
generate adequate retirement savings. "
Benartzi
proposed
seven
actionable
steps for plan sponsors and advisers to take:
1) Establish a digital policy statement.
" For the largest plans, digital design decisions
are typically implemented on a planspecific
website that's often built by or for
the sponsor. For other plans, design decisions
are more likely implemented through
selecting a service provider whose participant
website most closely aligns with the
sponsor's digital priorities, " the paper says.
A digital policy statement is helpful whatever
size the plan and should detail the objectives of the
plan provider's digital designs and contain the process for
measuring and improving those designs; it should also
factor in the costs and benefits of various digital features.
2) Incorporate design knowledge into the plan
committee. Benartzi suggests making sure someone on the
committee, or in a position to advise it, knows digital plan
design: Add a digital expert to the committee or ensure
that the plan adviser or another third party executes the
digital policy statement when selecting service providers.
3) Test,
test, retest. Rigorous testing of different
digital designs should be done routinely and with a goal
of constant improvement.
4) Follow the science. As research is always evolving,
those involved in plan design and administration should
ensure that their plan's digital features reflect the latest
academic findings.
5) Evidence-based innovation. Although it is important
to keep up with current research, advisers, sponsors
and providers need to consider the consequences of technological
developments, as well. " The larger lesson is that
we need to carefully measure the behavioral implications
of our digital tools, to maximize the upside (such as the
increased savings that come from improved web design)
and minimize the downside (such as the link between
additional feedback and myopic loss aversion), " the
paper says.
6) Make the right thing easy. Defaults can be
considered one of the most important influences
on decisionmaking. Therefore, the plans " should
conduct a default audit, assessing the implications
of every online default " to improve outcomes.
7) Think of 21st century risks. Those working
with plans need to expand their concept of risk,
specifically in two areas: cybersecurity/cyberfraud
and the issue of " digital exclusion, " in which certain
participants might have a harder time navigating
online enrollment. -PA
PLANADVISER - January/February 2022

Table of Contents for the Digital Edition of PLANADVISER - January/February 2022
