Understanding pension communications at the organizational level: Insights from bounded rationality theory & implications for HRM

Abstract

This paper applies concepts from bounded rationality theory to develop an integrative model to understand how pension scheme structure and pension scheme communication impact pension participation and contribution rates at organizational level. Organizational pension policies create framing effects that can have intended and unintended consequences depending on how they impact on employees' cognitive processes. Organizational pension communication policy impacts employee pension outcomes through the interaction between fast-acting, automatic System 1 and deliberative, calculating System 2 that typically endorses and occasionally overrides System 1 judgments. System 1 exhibits mental short-cuts (heuristics) and systematic biases. The likelihood of a System 2 challenge to System 1 depends on the personal, socio-demographic and economic characteristics of the individuals within the workforce. We propose that those within the HR function, who understand framing effects, can develop pension policies that positively affect pension plan outcomes at the organization level, specifically the pension participation and average contribution rates, using a combination of policies that in some cases promote System 2 endorsement and in other cases, System 2 engagement.