July 18, 2012
--- Plan sponsors should avoid using “jargon” investment
language that some participants do not understand, even terms that would
seem to be common knowledge, such as “equity.” ---
“We need to make [retirement
planning] digestible and easy,” Kristi Mitchem, senior managing director and
head of Global Defined Contribution for State Street Global Advisors (SSgA),
said during a media event.
If language is not made simpler,
participants may be too afraid to take action, she cautioned. A survey by SSgA found
that 16% of participants polled do not “really know anything about” asset
allocation, 12% do not know anything about the term “equity,” and 10% do not
know anything about the term “fund.”
“All of these things for
participants represent investment jargon,” Mitchem said.
Plan sponsors are fairly aware that
participants’ investment knowledge is minimal, but they may be surprised to
know participants do not understand these investment terms, she said.
When survey respondents were asked
which description would best help them understand how a target-date fund (TDF)
works, 33% said they preferred the following description: “Target-date funds
are a diverse mix of investments like stocks, bonds and cash equivalents that
periodically and automatically adjust over time to grow more conservative as
you near your target retirement date.”