We’ve just come through a season filled with consumption and spending: Black Friday, Cyber Monday, Giving Tuesday. When we say “’Tis the season,” we mean not only that it’s the season to be jolly, but also the season to have empty wallets!
Obviously, there’s some seasonality in spending prompted by holiday gift-giving and goodwill, but is there seasonality in other behaviors, such as saving? And how can you, as a plan sponsor, tap into that seasonality to make your plan more effective?
One of the key “seasons” for employees is open enrollment in the fall. People are more tuned into administrative tasks during this time when they have to make choices about insurance coverage—health, life—and about flexible spending accounts (FSAs). During this time, employees may be required to name their insurance beneficiaries. It’s also a great time to ensure they have up-to-date beneficiaries on their retirement plan accounts as well.
To take advantage of this employee administrative mindset, in November Vanguard sent a “name your beneficiary” email campaign to participants of plans using our behavior-based campaigns. The email campaign had high open rates (33%), besting industry benchmarks, and a click-through rate four times the industry benchmark (source: Epsilon Trends and Benchmark Report). We saw so many new beneficiary registrations come from employees in a matter of days that some of our plan sponsor contacts called us to see if there had been a glitch!
There’s also seasonality to savings decisions, in part prompted by the U.S tax code. For example, you can contribute to an IRA any time of the year. However, many people direct savings to an IRA in the final weeks before April 15—often because they get a helpful prompt from their tax preparation software. (It can be especially influential when the software graphically “scores” the value of an IRA contribution in terms of lower taxes owed to Uncle Sam.)
We know that savings directed to defined contribution retirement plans follows this pattern too: We see spikes in payroll deferral percentage increases in the beginning of the year, and again just after tax time. Although counterintuitive, as plan sponsors, you may want to consider avoiding special one-off savings campaigns at these times of year. Why? Well, because employees are in a savings mindset, those who are likely to save will do so without prompting. We’ve seen this happen in past savings campaigns.
Last January, our Save More email campaign had an 8.2% success rate, meaning a bit more than 8% of the employees receiving the savings message took action to increase their payroll deferral. However, 7.9% of our holdout group—those who didn’t receive the emails—raised their deferrals, too. So, it wasn’t the campaign that drove the majority of behavior, it was the general mindset of employees at this time of year. Given this, you may want to wait until later in the year to try to nudge those employees who might need a little more encouragement to save more, and you’ll be able to better gauge effectiveness. (One bright spot from this particular campaign: Fewer participants in the 20–49 age group decreased their deferrals versus our holdout group, so the mailing, while it didn’t encourage a lot of additional savings, did discourage some from reducing their savings.)
We’ve also learned from our measurement that it doesn’t pay to send any retirement plan campaigns between Thanksgiving and Christmas. The holiday season is the highest email volume time of the year, and people are very selective about what they open in their crowded in-boxes. Plus, with all the holiday spending, participants may feel too tapped out to raise their savings. You could say the holidays are the season not for saving.
Another season when it’s harder to reach participants is the summer. Internet usage is at its lowest and employees are on vacation, so we also witness low open rates for Vanguard emails sent during that time.
What does tick up in the summer months is borrowing from the plan, for reasons that we don’t yet completely understand (How America Saves (HAS), page 94). If you’re concerned about your plan’s loan activity, targeted messaging just ahead of the summer months could make sense. (But the impact of loans may be overblown.) Non-hardship withdrawals, such as those taken by employees over age 59½ who are still in service, are typically taken in the first quarter of the year. Our hypothesis is that this relates to the timing of profit-sharing contributions, which frequently are made in the beginning of the year (HAS page 96).
Since there’s no “Savings Saturday” that might help solve employees’ retirement savings shortfalls, it’s always important to be aware of the proclivity of your participants as you design ways to effectively engage them in retirement savings and planning throughout the year. At Vanguard, we do this through testing, experimentation, and learning through our email campaigns, face-to-face meetings, and web nudges—all with the goal of influencing employee behaviors at just the right time. Which, clearly, may not be over the holidays.
And while we may not be thinking about savings over the holiday season, I hope that you enjoy your time with friends and family and have a happy, healthy New Year!
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