Employers and the financial services industry are spending more energy and assets than ever in the effort to get functional retirement solutions to workers.

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

“The big problem is what we say to participants is not what they hear,” said Greg Jenkins, managing director and head of institutional defined contribution at Invesco. “Jargon we use in industry doesn't work.”

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

Even the seemingly simplest language that has become boilerplate is lost on investors, said Jenkins, particularly when it comes to target-date funds.

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

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

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

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

“We've been using words like glide path for a long time in industry, but when you take a step back, a lot of the givens don't really work with participants,” he added.

The four Ps: Positive, plausible, plainspoken, and personal

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

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 negative ideas, that tends to shut them down.”

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

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

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

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

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

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Glide path? What's that? How to better communicate with 401(k) savers

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