DC Jargon Contributing to Retirement Savings Crisis

Complicated, non-intuitive terminology is a barrier to plan participation, endangering the retirement security of large numbers of Americans.

By editors@strategic-i.com | November 04, 2013
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Ctrl-Alt-Delete! A jargon reboot is long overdue! 

Let’s agree that, from this point forward, we will not use the term “contribution” to refer to “payroll deduction deposits”.

If you were to ask 100 random people what they think when they hear the word contribution, how many of them would say it’s a retirement account deposit?  Not many, unless you happen to be at a retirement industry gathering.  The primary definition of the word contribution is “gift” or “donation.”  It’s hard enough to get people to give up take-home pay, without sending the message that they’ll never see the money again! 

And, how about “deferral?”  Ask another 100 people about the meaning of the term deferral.  Wouldn’t most of them say it’s something you put off until later?  Great. Just what we need when we’re beating our brains out trying to get people signed up for their defined contribution (DC) plan!  What were we thinking?!?? Maybe we weren’t.

“Allocation.”  What the heck does allocation mean?  This is a word that probably has no association at all to most people.  A few might associate it with rationing, such as gasoline in the 70s, or limited supplies of the latest release of popular smartphones. We could make it easy for people by explaining that an allocation is simply a person’s investment “elections.”  Elections?  Now we’re voting in DC plans?  We know better, but the average person might find this a bit confusing.  Are people likely to embrace something they don’t understand?  If it involves giving up take-home pay, maybe not.

The benefit of “asset allocation models” and “model portfolios” might be more easily grasped if they were labeled as “managed accounts” or “let us do it for you.”