As investment menus evolve, defined contribution plan executives must improve communication to participants to explain new investment choices as well as to dispel lingering misconceptions, DC investment experts said in a Tuesday session at Pensions & Investments' Investment Innovation and the Global Future of Retirement conference in New York.
Plan executives must focus more on how they communicate to participants with different investment and retirement needs, said Liana Magner, partner, U.S. leader for delegated DC, at Mercer.
“How you say something can be more important than what you say,” Ms. Magner said. Her remarks about communication accompanied her discussion of how core investment menus are changing.
For example, she said the use of several types of investment options is declining. Options on the decline include equity dominated options, capital preservation default options and sector fund options.
On the other hand, Ms. Magner said several options are becoming more popular. They include white-label funds, diversified fixed-income funds and liquid alternatives. The liquid alternatives — such as commodities, Treasury inflation-protected securities and real estate investment trusts — are more commonly built into custom target-date funds or multiasset funds rather than as stand-alone options, she said.
Ravi B. Venkataraman, senior managing director at MFS Investment Management, illustrated how plan participants still do not understand some fundamental investing and 401(k) principles. “We need to do a better job of communicating,” he said.
For example, a recent MFS survey showed that most participants do not understand the ideal way to diversify a 401(k) account. Only 18% provided the correct answer — investing in a target-date fund; 22% had no idea, 28% said investing a little bit in all of all the investment options offered by the plan and 32% said investing in a mutual fund that holds a lot of different stocks.
In another example, 65% of participants mistakenly believe that index funds are safer than the overall stock market.
