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Retirement Planning > Retirement Investing

What These 4 Phrases Mean to Retirement Plan Participants

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Invesco conducted a new study that analyzes the common language used to describe features of defined contribution plans and the impact it has on employee engagement.

The survey of 800-plus respondents across generations revealed an obvious disconnect between what plan sponsors are saying and what participants are hearing.

According to Invesco, it is clear that participants want their employers to move away from industry jargon.

“Using the right words provides clarity to participants, which can lead to confidence,” the report states. “For plan sponsors looking to evolve their communications to increase participant engagement, help motivate them to save for retirement, and encourage them to make good decisions along the way, using personal, positive and plausible words in plain English could make all the difference.”

Here are four examples of words and phrases that the study found participants either understand or find confusing.

1. “Free Money”

When participants were asked the best reason to take advantage of their employer’s matching contribution, 39% said they preferred to hear the words “the match is free money” compared to other options such as “you are leaving money of the table” (23%).

Another top reason cited by 32% of those surveyed was “the match allows me to invest more in my 401(k).”

2. “Customized Strategy”

When describing target date funds, all ages gravitated to descriptors of an investment that is “managed for you” and designed to help “achieve your goals.”

The study found that using personalized language — such as “a customized strategy” — to explain how target date funds work may help combat their misuse. Nearly half of survey participants believed the best reason to put their retirement savings in a single target date fund (versus investing in additional options) was due to the TDF’s customized strategy description of balancing growth potential, managing risk tolerance, and adapting to one’s time horizon to retirement.

“This description overwhelmingly resonated with all age groups and seemed to best explain the fund’s intent,” the study states.

3. “Risk”

The study found that the term “risk” means different things to different investors, and the way in which terms are communicated — positive or negative — plays a big role in how they are generally perceived by participants.

For example, when it comes to target date funds, 61% of participants preferred the more positive phrase, “stay on track to achieve my goals” versus “managing risk.”

“By using the phrase ‘stay on track,’ participants are exposed to a different way to communicate risk management that seems more approachable,” the study states.

The study also asked whether participants would rather invest in target date funds and target risk funds, and found that “target risk” was favored by millennials (54%) and Gen X (53%) while “target date” was more favored by the baby boomers (52%).

4. “Glide path”

Among plan sponsors, plan providers, advisors and consultants, the term “glide path” is widely used.

However, when the survey asked participants to define what the industry means by a target date fund’s “glide path,” the term ranked the lowest (4%) of all descriptors, with the more specific “risk-reduction path” resonating highest (40%).

Also, when participants were asked to build their own retirement plan strategy, future-focused strategies, such as “the year I hope to retire” and “my return goals” beat out current-day strategies tied to “my risk tolerance” and “my current age.”

— Check out DC Plans’ Main Focus in 2019 Is Fees: Survey on ThinkAdvisor.


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