man holding question mark sign While Invesco's research shows that investors acrossage groups often don't know that TDFs are diversified, they dounderstand what it MEANS to be diversified. (Photo:Shutterstock)

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Employers and the financial services industry are spending moreenergy and assets than ever in the effort to get functionalretirement solutions to workers.

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But their approach to communicating those solutions often falls ondeaf ears, according to new research from Invesco.

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“The big problem is what we say to participants is not what theyhear,” said Greg Jenkins, managing director and head ofinstitutional defined contribution at Invesco. “Jargon we use inindustry doesn't work.”

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For more than a decade, Invesco has been producing research onthe language used to communicate with investors. This year's studyis the first to focus on savers in defined contribution plans.Invesco manages about $96 billion in defined contribution assetsand entered the target-date market last year.

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Even the seemingly simplest language that has become boilerplateis lost on investors, said Jenkins, particularly when it comes totarget-date funds.

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“People don't know what they are,” said Jenkins of TDFs, whichsurpassed the $1 trillion threshold last year and are by far themost common qualified default investment alternatives in retirementplans across the size spectrum.

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The worst culprit is the term industry has made synonymous withTDFs: “glide path.” The term that can be found in nearly everytarget-date fund brochure produced for 401(k) savers “is one of theworst performing words we have tested in 17 language studies,”noted Jenkins.

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Invesco's survey of more than 800 large plan participants showed“glide path” failed to convey its intended meaning: Of the languageand terms put to survey respondents, glide path ranked the lowest,with only 4 percent saying it provided a clear description of howTDFs manage risk.

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The confusion was found across demographics and pay scales—evenparticipants in management positions with years of experienceinvesting in 401(k)s were unable to associate the term glide pathwith diversification, said Jenkins.

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“We've been using words like glide path for a long time inindustry, but when you take a step back, a lot of the givens don'treally work with participants,” he added.

The four Ps: Positive, plausible, plainspoken, andpersonal

The failure to engage savers with language they grasp can leadto stasis and poor investment decisions. Evidence of a generalcommunication breakdown is found in the fact that many TDFinvestors are only partially invested in the funds, which aredesigned to account for most, if not the entirety of a 401(k)account's allocation, said Jenkins.

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Positivity is critical in educating 401(k) participants,Invesco's study found. “Fear selling” doesn't work, says Jenkins.“When savers are confused, or feel they're faced with negativeideas, that tends to shut them down.”

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Plausible, realistic goals—“no dream retirements with golfcourses and yachts”—put in plainspoken terms, and personalizedmessaging are ways to better engage savers, says Jenkins.“Personalized messaging—'your plan', 'your investments'—has adramatic impact.”

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While Invesco's research shows that investors across age groupsoften don't know that TDFs are diversified, they do understand whatit means to be diversified.

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“Diversified is a powerful word,” said Jenkins. “It's prettyuniversally understood and needs to be used more with TDFs.”

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“Risk reduction” and “rebalancing strategy” was also languagegrasped by savers, according to Invesco's research.

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“What we heard is that participants want plain language,” headded. “I don't know that we've yet found the perfect language whenit comes to TDFs, but it's clear that 'glide path' isn'tliked.”

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READ MORE:

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9 ways to help 401(k) participants savemore

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5 retirement preparedness numbers foremployers

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6 companies with the very best retirementplans

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Nick Thornton

Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.