Speaking to a plan sponsor’s heart, Manning & Napier Advisors, Inc identifies the simple problem with the complex answer. “If you are the sponsor of a 401(k) or other type of participant-directed plan, you know the problem. Many participants are confused about investments.” Yet, the firm’s white paper, A Solution to Participant Confusion:Help DC Plan Participants Make Better Investment Choices Using Tiered Communication and Life Cycle Funds, says the solution does not necessarily have to be complex and is as easy as offering lifestyle fund options in 401(k)s.
“Participants cannot save their way out of inadequate investment returns,”said Patrick Cunningham, Managing Director of Client Relations and a memberof the firm’s Executive Group. “Helping your employees earn a higherinvestment return, even by a percentage point or two, can have a majorpositive impact on their preparedness for retirement.”
Plan sponsors may approach the easy answer with trepidation, given that traditionally the utilization rate of these funds remains in the single digits. However, Manning & Napier said utilizing a strategy outlined in the white paper, they were able to increase participation rates among lifestyle funds to better than 50% of a plan’s participants.
The Rochester, New York-based registered investment advisor offers three case studies of companies that dramatically increased the use of lifestyle funds among plan participants through Manning & Napier’s two-tiered communication strategy, the lynch pin of which is to offer participants a clear, concise decision,“ Would you like to make the asset allocation decisions yourself or delegate them?”
Manning & Napier found with this clear message, “most participants who chose to invest in life cycle funds used them appropriately.” Quantifying their results, the firm said an average of 57% of participants in the case studies invested all of their accounts in a single, diversified life cycle fund, while an additional 10% invested all of their accounts in two adjacent life cycle options on the risk spectrum. Further 14% invested across both sides of the two-tier menu in a consistent manner.
To further drive home the message to participants, Manning & Napier found the communication strategy to be most effective in on-site group meetings. Speaking to the three case studies detailed in the white paper, the firm said, “These plans had the ability to hold group meetings and, as a result, participants used the professionally managed life cycle funds broadly, with over 50% of plan assets directed to these offerings.” Without the onsite meetings, Manning & Napier said utilization of lifecycle funds will not be nearly as high, “Many companies, including many large plan sponsors, cannot offer on-site group meetings. With the message in hardcopy and Internet form only, there will likely not be 50%+ utilization. “
Further, the white paper examines details of an approach that integrates everything from menu design, fund selection, and communications in an effort to reach out to the participants most in need of professionally-managed allocations.A copy of the 24-page report,A Solution to Participant Confusion, is available at http://www.manningnapieradvisors.com/www/news_detail.asp?ID=60 .