March 1, 2019

Plan sponsors and providers are plagued by the “curse of knowledge,” tending to overuse jargon

What is the “curse of knowledge?” The curse of knowledge is a well-known heuristic in behavioral economics. If you’ve ever tried to teach someone a skill or concept that you are familiar with, you may have encountered this. The curse of knowledge makes it difficult to understand perspectives that don’t have the same foundation of information; for experts in a given area, it’s hard to imagine not having the knowledge you have. Explaining to someone who doesn’t have your background of knowledge can be more challenging than you might imagine, as you try to describe concepts that feel like second nature to you.

Now, this curse is haunting plan sponsors, as new research demonstrates that retirement plan participants are making sub-optimal choices because the communication they get from their employers and the industry is too full of jargon to understand clearly. A paper from Invesco and Maslansky + Partners, “ReDefined Contribution Plans: the defined contribution language study,” surveyed plan participants and found a number of common areas of confusion. The paper’s authors recommend that sponsors and providers use plain-English communications: “It may seem simplistic, but telling potential plan participants about the fact that they are leaving ‘free money’ on the table is far more effective at driving behavior change than talking about ‘projected retirement income shortfalls’ or ‘uninsured longevity risk,’” says Plansponsor article author Manganaro on the paper’s findings.

Another area that could use some clarification is target-date funds. Talking about glide paths means nothing to most participants, but “risk reduction path” is a bit more descriptive. Participants will also understand the idea of “growing more conservative as you near retirement.” Similarly, the paper found that a complex description such as “an all-inclusive asset allocation portfolio that is dynamically balanced with investments that have a low correlation” was not helpful to most participants. A better description might be “a personalized approach” or “managed for you.”

This study shows just how important terminology is in terms of driving participant behavior. If your participants are making odd choices, it may be a result of confusing communication. If you want to communicate effectively with your participants, become aware of the curse of knowledge and find ways to mitigate it by putting yourself in your participants’ shoes. How would you define the terms in your communications if you could not use any industry jargon? Consider starting there as you build out your participant communication programs.

Source: “Sponsors and Providers Use Too Much DC Plan      Jargon” by John Manganaro; Plansponsor; January 14, 2019; https://www.plansponsor.com/sponsors-providers-use-much-dc-plan-jargon/