Retirement planning tools are useful to participants, but access to an adviser is also crucial, Jason Frain, vice president of 401(k) product management and development at Guardian Retirement Solutions, told PLANADVISER. “There’s definitely a percentage of the population that [uses the tools], but there is a much larger percentage of the population that needs that one-on-one interaction,” he said.
An adviser’s focus should not be solely on investments—participants also need education about their full financial picture. “I think that’s something that we need to stress to advisers,” Frain said. “They’ve got a duty to go out and help participants.”
Advisers can use behavioral finance to determine the most effective methods for helping participants. To combat inertia, for example, they can encourage employees to make decisions during educational meetings about increasing their contributions or signing up for a defined contribution (DC) plan. “Don’t let a participant walk out of the room without making a decision,” Frain suggests. “I don’t think we’ve really stressed that sense of urgency enough as an industry.”
But it’s not enough to simply prompt participants to make decisions—they have to make the right ones. “If you don’t give participants the right types of options, you create uncertainty and they behave in potentially detrimental ways,” said Tim McCabe, senior vice president of retirement sales at Stadion Money Management. “But if you give them the right ones and guide them to those options, they get a sense of comfort.”
McCabe suggests offering employees an age-appropriate vehicle in their plans, such a target-date fund (TDF), managed account or risk-based fund. “The key is an age-appropriate vehicle that gives participants the confidence that they are invested correctly for where they are in their retirement growth years.”
Stadion examined 30,000 to 40,000 participants five years after being defaulted into an age-appropriate investment vehicle and found that fewer than 5% had opted out or changed to a do-it-yourself approach. “If they are defaulted into an age-appropriate vehicle, they remain in it,” he concluded.
More information about National Retirement Planning Week is available here.