Simplify Menus to Meet Participant Objectives | Capital Group

Defined Contribution 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.


Munnell, Aubry and Crawford, “Investment Returns: Defined Benefit vs. Defined Contribution Plans,” Center for Retirement Research, December 2015. The quoted figure represents an asset-weighted calculation for all plans over the period 1990-2012 that measures the change in assets as reported on the 5500 form, netting out for cash flows.

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

PSCA’s 58th Annual Survey of Profit Sharing and 401(k) Plans, 2015.

Iyengar, Jiang and Huberman, “How Much Choice is Too Much?: Contributions to 401(k) Retirement Plans,” Pension Design and Structure: New Lessons from Behavioral Finance, 2003.

Benartzi and Thaler, “Heuristics and Biases in Retirement Savings Behavior,” Journal of Economic Perspectives, 2007.

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Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the mutual fund prospectuses and summary prospectuses, which can be obtained from a financial professional, and should be read carefully before investing. Similar information about collective investment trusts can be obtained from Capital Group or participants’ plan provider or employer. 

Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. This information is intended to highlight issues and should not be considered advice, an endorsement or a recommendation. 

This content, developed by Capital Group, home of American Funds, should not be used as a primary basis for investment decisions and is not intended to serve as impartial investment or fiduciary advice.

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