A new wave of retirement planning tools seeks to connect employees to their 401(k) plans by tapping into their hearts rather than their heads.
Spurred by the work of behavioral economists, the tools guide employees to consider an older version of themselves.
"If you have empathy for yourself in retirement you're likely to save more," said Warren Cormier, founder and president of the Boston Research Group.
Empathy is just one of the tenets of the new wave of tools that plan sponsors are using to entice workers to save for retirement.
"There are more powerful forces at play than a linear approach," Cormier said. "There are things that change people's behavior beyond education."
Unfortunately, simply talking about investment choices and the importance of saving in a group meeting often leads to little action afterward, researchers have found.
"The education delivery model is flawed because it's passive," said Matt Iverson, co-founder of Boulevard R, a San Francisco company that provides retirement tools to plan sponsors and advisors.
Using research by Dan Ariely, a behavioral economist from Duke and MIT, Boulevard R last year rolled out Retiremap, a software tool designed to engage plan participants.
Instead of listening to someone talk, employees are given iPads so they can use the tool to assess their own financial situation.
"People have an emotional response, they are engaged," Iverson said.
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The success of that engagement is backed by metrics, which show that after completing the exercise. 53 percent of employees increase their salary deferral rate. In addition, 88 percent of employees say they plan to save more for retirement after using the tool.
Connecting an employee to his retirement self was found to raise salary deferrals to retirement accounts in a study by Mercer and the Stanford Center on Longevity.
Some in the study were shown age-enhanced photos of themselves while others did not see such images. Those that looked at their old age squarely in the face put an average of 6.8 percent of their salary in their 401(k)s. Those that didn't deferred 5.2 percent.
That's powerful, but the authors of the Mercer/Stanford study said that plan participants could simply envision their retirement as a short list of needs, and that would have the same effect.
"If you create an emotional connection, you get more of a behavioral change than with just a data base connection," Cormier said.
Instead of focusing on retirement savings, companies are seeing the benefit to treating financial health in a holistic way to engage employees.
Iverson's tool does that, but even employers with a more traditional approach to educating workers about retirement savings have seen the benefit of his approach.
The Society of Human Resources Management, an association with more than 250,000 members founded in 1948, has employee participation rates in its defined contribution plan that almost any company would envy.
