Simplify Menus to Meet Participant Objectives | Capital Group

Investment Insights

November 2016

DC Investment Perspectives: Simplify Menus to Meet Participant Objectives

Defined benefit (DB) plans consistently report better returns — as much as 0.9% higher per year1 — than defined contribution (DC) plans. The Pension Protection Act gave plan sponsors tools to narrow this gap, such as investment re-enrollment and target date funds (TDFs) as default investments. These have helped improve investing behavior for many participants, but what about the 63% of DC plan participants who still make their own investment decisions?2

Plan sponsors can set up better decision-making from these participants by simplifying their investment options. Fewer and easier-to-understand menu choices can encourage more appropriate selections, leading to better potential outcomes. Sponsors can facilitate this with a few steps:

  • Reduce the number of menu options to simplify decision-making.
  • Re-label menu options around easily understood life goals to better align with participants’ retirement objectives.
  • Re-organize menus using broader more flexible options to maintain diversification with fewer choices.

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1 Munnell, Aubry and Crawford, “Investment Returns: Defined Benefit vs. Defined Contribution Plans,” Center for Retirement Research, December 2015. 

2 Aon Hewitt, “2015 Universe Benchmarks: Measuring Employee Savings and Investing Behavior in Defined Contribution Plans,” July 2015.

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