Defined contribution plan sponsors need to do a better job communicating key information to participants, according to a survey of plan participants conducted by State Street Global Advisors.
"When asked to score the risk and return profiles of traditional fund names between one and 10, roughly 30% of the participants consistently responded, 'I'm not sure.' That figure increased to roughly one-half for the subset of participants who had not read or talked about financial matters in the last six months," according to the survey analysis.
State Street suggests that firms revamp their menu design and avoid using terms like "small cap," "growth" and "active."
"Plan sponsors should consider building multi-asset class solutions that seek particular risk-return characteristics and white labeling them," the summary says. For instance, a single multi-manager large-cap stock fund could include the S&P Index Fund, large-cap active core, large-cap active growth, and large-cap active value.
"Avoid making participants wrestle with choices about investing style or market capitalizations," says the summary. "Simplify as much as possible the funds you offer and the menu that describes them."
The survey also found that users are confused about the target date category. "Half of participants said that they don't know how target date funds work or simply are not familiar with them." One-third of the participants preferred the simplest, most jargon-free description of the concept.
Mary Schroeder writes for Securities Technology Monitor.