Many defined contribution plan participants are investing without fully understanding investment option risks and asset allocation strategies, while not paying much attention to education tools offered by sponsors, new surveys show.
AllianceBernstein LP found that participants are increasing their investments in target-date funds and expressing greater satisfaction with these choices. At the same time, however, many aren't sure what target-date funds do or how they work.
A Towers Watson & Co. survey of DC plan executives revealed that few participants make good use of their employers' retirement/investment planning resources or make informed decisions regarding their retirement savings.
The surveys expressed optimism about increased participation tempered by frustration about participants failing to take full advantage of their opportunities.
“As much as you try to educate and disclose, there's a lack of understanding,” said Joseph Healy, a senior vice president at AllianceBernstein in New York.
“Employers feel they have given employees the tools, but that they don't use them,” said Robyn Credico, defined contribution practice leader for Towers Watson in Arlington, Va.
Consultants, providers and plan executives have long bemoaned participants' lack of interest in and understanding of building a foundation for retirement. Taken together, these surveys illustrate, at least for target-date funds, that participants are well-intentioned — investing in a diversified portfolio while reducing risk as they grow older — even if they're not well-informed.
The two surveys by AllianceBernstein, to be released Oct. 15, reveal that one-third of participants don't understand that target-date funds become more conservative as investors get closer to retirement. Of that figure, 13% answered incorrectly when asked about a glidepath and 20% responded “don't know.”
When presented with the statement that target-date investment balances are “guaranteed never to go down,” 34% incorrectly said the statement was true and 23% said they didn't know.
And when asked to comment about the claim that target-date funds “guarantee that you will meet your income needs in retirement,” 37% incorrectly answered “true” and 22% said they didn't know.