Experts also suggest employees break decisions down into the actual process of them. That is, are there decisions that are experiential and can be tested or tried out with little repercussions? If so, can you test drive the decision first?
Plan sponsors contemplating what topics to cover in employee education, may feel like they face a long list. But there is one thing that seems to be on everyone’s mind during the Great Resignation. And that thing is the decisions we are making. Surveys indicate 25% of GenZ employees are planning on leaving their jobs in the next 6 months. Millennials aren’t far behind them, with surveys indicating 23% are planning on doing the same.[1] In the midst of these large, life changing decisions, how can plan sponsors help their employees navigate smaller but no less important decisions, like planning for retirement?
It may seem counter-intuitive, but employees who are making big decisions may also struggle with the smaller, less pressing ones. That’s because decision-making ability decreases the more frequently decisions are made. As we’ve discussed before,[2] employees that are constantly weighing scenarios, like whether to leave a job, may be depleting their decision-making skills by running through possible options repeatedly without getting to a result. How can you help employees learn to make better decisions? Here are a few ideas.
Employees may want to know that they see their futures as potentially rosier than real life because of the cumulative effect of the last two years of unending chronic stress.[3] “Here’s an odd twist: stress makes people unusually, ill-advisedly, positive. You would think that employees acting under stress would search for possible downfalls or weight the negatives in any decision more strongly. You would be wrong.” [4] And what’s even more odd is that the stress a person is under is unrelated to the optimism. Stress at home can translate into unrealistic optimism about career details and vice versa. As we noted in other articles, “this is may be why gamblers don’t step away from the table when they are losing.” The unrelenting emotional stress of a pandemic, racial tension and a volatile economic market may have younger generations betting the house on their next career move. For those who have saved for retirement, they may think they can replenish those savings easily in the first few years after a career pivot. Plan sponsors may want to include this paradox in their employee education so that employees can be more reflective on their decisions.
Employees may need to know that unlike chronic stress which causes individuals to be unrealistically optimistic, those suffering from chronic anxiety are more likely to make poor decisions in any scenario. Chronic health conditions, like long-haul COVID recovery, can also negatively impact decision-making. A chronic decrease in overall wellness, and the fatigue and pain associated with it, can negatively impact decisions similarly to those with chronic anxiety. That’s because the mind perceives chronic anxiety and chronic pain in the same way, and that process decreases decision-making abilities. Chronic stress, anxiety or health conditions can also lead to emotional investing, where investors respond poorly to market conditions by trading too often or failing to rebalance accounts.[5]
Even employees who aren’t chronically stressed or anxious can benefit from some of the basics of better decision making. Those basics, as discussed by experts, include understanding your information barriers and biases. As to understanding information biases, decision making expert Mark Mortensen names four basic biases employees should consider about the information they have that informs a decision.[6] We’ve covered the important topic of comparison bias in retirement planning before.[7] But as to general information bias, those four areas are: anchoring (influencing a decision based on a starting point, like a price or your general feelings); confirming (favoring information that confirms what you already believe); availability (giving too much weight to recent events or emotionally charged aspects of information); and framing (how information is presented, such as saving money, rather than enhancing wellbeing).
Experts also suggest employees break decisions down into the actual process of them. That is, are there decisions that are experiential and can be tested or tried out with little repercussions? If so, can you test drive the decision first? Plan sponsors may be able to assist employees in this area by providing scenarios and calculators employees can use to alter and shift variables to see how various decisions might impact their retirement plans without actually taking those specific actions. Retirement calculators can be used like simulators in that employees can see how specific actions and decisions can impact their savings before taking those actions.
When it comes to helping employees make better decisions, any information plan sponsors can get to employees about it before, during, or after turbulent times is a good thing.
[2] https://www.bcgbenefits.com/blog/burnout-and-stress
[3] https://www.bcgbenefits.com/blog/retirement-readiness
[4] https://www.bcgbenefits.com/blog/retirement-readiness
[5] https://www.bcgbenefits.com/blog/emotional-investing
[6] https://hbr.org/2021/11/a-measured-approach-to-making-a-drastic-change
[7] https://www.bcgbenefits.com/blog/keeping-up-with-the-joneses
These articles are prepared for general purposes and are not intended to provide advice or encourage specific behavior. Before taking any action, Advisors and Plan Sponsors should consult with their compliance, finance and legal teams.
Before leaping into the unknown, we recommend a thorough examination of your plan. Because we are experts in the field, we know the marketplace and know what your existing vendor is capable of offering. Through this examination, we can help you optimize the service you receive.
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