How Should DC Plans Address The Knowledge Gap? by Richard Davies, AllianceBernstein

Knowledge is power. It breeds confidence and clarifies planning. But there’s a knowledge gap in the retirement-savings mindset of many American workers, and plans need to help.

Why do US workers lack investment competence? There are many likely reasons: “I’m too busy.” “I’ll think about it tomorrow.” “Investing is complicated.” It’s not easy to keep up, let alone get ahead. So, most of us simply avoid learning even the basics of practical investing for retirement.

That lack of knowledge helped drive the creation of target-date funds. It contributed to the rise of automatic enrollment and the Department of Labor’s approval of diversified, all-in-one solutions as qualified default investment alternatives (QDIAs) in defined contribution (DC) plans. Both measures represent efforts to wire proper investing decisions into retirement plans.

But is automatic enrollment into a QDIA the end to the story? No.

Results from our latest survey of American workers offer compelling insights about their love/hate relationship with retirement saving. The survey also reveals what DC plan sponsors and investment providers can do to make that relationship more productive and more confident.

Retirement Confidence Is Chronically Low

Workers haven’t had much confidence recently. In recent years, the most confident they’ve been was in our 2013 results. In that survey, about a third saw a comfortable retirement as a reality. And that survey was conducted toward the end of a very strong year for US stocks. In 2014, fears of slower global growth tempered returns—and confidence, which fell back to 25% in 2015 (Display 1).

DC Plans

Workers’ top concerns are still the same: They don’t think they’ll have enough money to live the way they do now. Social Security may not help as much as it did in the past, and people are afraid of depending on others. The main reason for whatever confidence our respondents do have? At least they’ve saved some money (Display 2).

DC Plans

But one-fourth of them plan to delay retirement, and nearly a third say they’ll continue to work part time once they do retire. Curiously, nearly one-fourth say they’ll get a pension, even though more companies are terminating or freezing their defined benefit plans.

Investment Education Can’t Be “One Size Fits All”

That result raises another big issue: a lot of the investment and retirement-planning knowledge workers believe they have is actually mistaken.

This unfortunate reality could have a useful silver lining. It may lead to reform in the efforts of plan sponsors and investment providers to increase participants’ engagement in retirement saving. We can’t simply try to educate workers about saving and investing—we have to clarify and eliminate the misconceptions many workers have.

But as our results show, we can’t have the same conversation with every worker. Patterns of knowledge (or lack of it) and confidence vary among workers. Those patterns correspond to distinct attitudes and attributes that create different investor profiles, or “personas.”

We believe that the path to achieving better retirement outcomes for American workers starts with acknowledging these personas, and using them as a basis for a more tailored approach to communication, engagement and education.

The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams.

“Target date” in a fund’s name refers to the approximate year when a plan participant expects to retire and begin withdrawing from his or her account. Target-date funds gradually adjust their asset allocation, lowering risk as a participant nears retirement. Investments in target-date funds are not guaranteed against loss of principal at any time, and account values can be more or less than the original amount invested—including at the time of the fund’s target date. Also, investing in target-date funds does not guarantee sufficient income in retirement.