The Retirement Plan Terms to Avoid
At a recent That 401(k) Conference, I had pleasure of viewing a presentation on a defined contribution plan language study from Invesco that, to be frank, floored me. Common retirement plan terms, used by me and many others, scored terribly when deployed in participant communications – with some even commenting that they were “mumbo-jumbo!” Below are some of the worst fairing terms in regard to participant engagement:
- “Glide Path” — I know I’ve used this term thousands of time in relation to target date funds, never once suspecting that my audience might not have a clue as to what it means! For the record, “glide path” describes the automatic risk-adjustment of a target date fund as an investor gets closer to retirement. However, only 4% of participants in the Invesco study said that it was the best way to describe this. According to the study, retirement plan sponsors should instead use terms like “risk-reduction path” (which 40% said was best) or “rebalancing strategy” (38% preferred) instead.
- “Target Date Fund” and “Lifecycle Fund”—Yes, not only did glide path score poorly, but the actual term “target date fund” was unpopular as well, resonating with only 17% of participants in the Invesco study. However, using “lifecycle fund” to describe these investments fared even worse, with only 11% describing it as the best term. Plan sponsors should try using “risk-adjusted retirement growth fund” instead, as 35% of the respondents agreed it was the most recognizable term.
- “Leaving Money on the Table”—One of my most tried-and-true phrases to describe what happens when a participant doesn’t take advantage of the maximum employer match was somewhat of a dud with participants, as only 23% of participants preferred it in the Invesco study. “Free money,” another common term used to describe an employer match, was the top performer (39%).
- “Retirement Income Options”—It’s safe to assume that the term “annuity” would score poorly and that we should avoid using it with participants; Invesco presumably knows this as well, since they did not even include it in their study. However, the term “retirement income options,” which is often used by annuity providers as a positive spin on the concept of a proper retirement decumulation/spenddown strategy in retirement, only scored moderately (34% of participants in the Invesco study preferred it, and only 29% of millennials). Far superior was the term “post-retirement investment options,” with 55% suggesting it was the best (and an even higher 56% among millennials).
In sum, it was amazing to discover that some terms I considered “participant-friendly” are not so friendly after all! This study is a good reminder that all phrasing in participant communication should be carefully chosen to ensure that it is engaging. Testing a piece with a group of participants who have little-to-no retirement plan knowledge is a good way to work out the terminology bugs before releasing participant communication to the entire intended audience.
Note: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice. Opinions expressed are those of the author, and do not necessarily represent the opinions of Cammack Retirement Group.
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