Inspiring Participants and Perceptions of Risk

A key element in Defining a Retirement Plan Standard of Excellence is inspiring participants to save for retirement.  In my experience, the focus in governing a plan should be on how much income a participant will be able to receive from their retirement assets.  In fact, legislation in Congress will require a projected monthly income to be reflected on participant statements if this legislation is passed.

The attached survey conducted by T. Rowe Price confirms more Plan Sponsors are focused on participant’s longevity risk, 42%, than any other factor.  This becomes a key factor in evaluating and choosing the Qualified Default Investment (QDIA) in the Plan.

Most participants do not have the time, knowledge, or inclination to make good investment decisions and, as the survey illustrates, emotions play an important role in the participant’s investment decisions.  Participant behavioral risk was the second biggest concern of the Plan Sponsors surveyed, 25%.  Therefore, Plan Fiduciaries need to evaluate and choose a QDIA which will withstand volatile markets while at the same time achieve the highest retirement income opportunity.

At some point there will be a test of the quality of the QDIA being utilized in the Plan.  It is imperative Plan Fiduciaries devote time to properly evaluate the Plan’s QDIA or engage an expert to assist them in doing so.

By Jeff Atwell, AIF, C(k)P, CPFA , Principal, TRG Fiduciary Services, LLC