Helping participants make a choice
Most plan sponsors are all too familiar with the dilemma posed when a participant drops by your office, armed either with an enrollment form or a recent statement, obviously concerned about his or her investment choices, who then says, "What do you think I should do?"
The answer to that question can be laden with the potential for disaster: To answer could subject the plan (and the plan sponsor) to unwanted liability; to demur might leave the motivated participant with a bad impression or, even worse, no clear investment direction. Of course, a growing number of plan sponsors now offer investment advice, and even access to education so specific that it seems almost to cross that line.
However, many participants are not interested in a complicated, convoluted process that eventually results in their having to select a half dozen options out of a menu of 20. Indeed, a growing number these days (some one in five, according to industry surveys) have access to pre-mixed asset allocation offerings, frequently dubbed "lifestyle" funds.
Properly positioned, these offerings can make a valuable addition to any retirement plan investment menu. With a modest investment of time, and the most basic cognizance of a retirement time frame, these offerings can truly offer participants an easy way to achieve a professional asset allocation of their balances—a true one-stop shop.
There are some downsides, of course—and that is where plan sponsors must lend their eye and perspective. These offerings can be relatively expensive alternatives—and fee structures should be considered in making them available. Also, some studies have indicated that participants can be confused by these options on the menu—mistaking them for yet another fund on the lengthy menu, rather than a choice that removes the need to consider the remaining investment choices of the plan. Here, too, a modest amount of communication can go a long way toward helping participants make the investment decision that is best for them.
This month's Know How is designed to assist in that communication. As always, we appreciate your thoughts and look forward to your feedback.
- The Editors