Plan Sponsors Should Steer Clear of Investment ‘Jargon’

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.”




Only 6% said they preferred a description that said, “Target-date funds are diversified investments that automatically adjust their asset allocation to reflect the risk and return objectives based on an investment horizon.” Participants were confused by terms in the second description such as “asset allocation,” “risk and return” and “investment horizon.”

“There’s a startling lack of financial literacy in the U.S.,” said Brigitte Madrian, professor at Harvard University John F. Kennedy School of Government.

For many finance professionals, investment jargon is like a first language, and they forget that the average participant is not fluent. To aid participants in understanding investing and planning for retirement, messages need to be simple and the content must be relevant, Madrian said.

The biannual SSgA Defined Contribution Investor Survey, conducted with the Boston Research Group, surveyed more than 1,000 401(k), 403(b), 457 and profit-sharing plan participants to identify their behavior and perceptions about saving and investing.