In the cautious defined contribution world, it takes a long time for new ideas to become conventional wisdom. So what happens when conventional wisdom is challenged by hard data?
Recent research has raised questions about the conventional wisdom that says target-date investors simply "set it and forget it" and participants don't need to mix target-date investing with other options in a DC fund lineup.
Other research has challenged the conventional wisdom that shrinking the investment lineup is necessary to prevent "choice overload," or that stretching the corporate match will encourage greater investment and contributions by some participants. (See related story on page 59.)
Authors of the research projects as well as veterans of the DC industry say these challenges to conventional wisdom can reflect new perspectives on a changing industry rather than a repudiation of past practices.
"The landscape we play in is different," said Drew Carrington, senior vice president and head of the defined contribution business at Franklin Templeton Investments, San Mateo, Calif. "Conventional wisdom emerging from research before the passage of the Pension Protection Act in 2006 may not be as significant today."
DC sponsors move slowly to adopt changes "until they reach a tipping point," said Lori Lucas, president and CEO of the Employee Benefit Research Institute, Washington. One tipping point was the Pension Protection Act, which encouraged greater use of automatic enrollment, changing how sponsors designed and managed their plans, she said.
After the law was passed, it still took time for DC plans to offer auto enrollment, according to annual research by Vanguard Group Inc. Among its clients, 10% offered auto enrollment in 2006; the rate grew steadily each year to reach 48% in 2018.
Ms. Lucas said sponsors also must be aware of other data that raises questions about conventional wisdom. For example, recent EBRI research challenged the assumption that people can expect to spend a constant level of pre-retirement income every year in retirement.
The recent unconventional wisdom research relies on real numbers — surveys of DC sponsors and/or analyses of record-keeping data — rather than economic models or behavioral finance assumptions.
"We have to let go of some assumptions of what's the right thing to do," Mr. Carrington said. "Beware of models. Sometimes, we tend to over rely on a study that becomes conventional wisdom."