When bad behaviors happen to good participants, it is usually because of timing, uncertainty or attention biases that cloud sound decision-making.
Jonathan Young, senior national accounts manager at Capital Group | American Funds, says advisors have to do better in helping retirement plan participants minimize these bad behaviors, and told the crowd how to do so during Tuesday morning’s keynote at the Wealth@wor(k) conference in Nashville.
Young, who declares on LinkedIn he is “dedicated to the noble quest of improving participant outcomes” (a man after our own heart), titled his session, “Misbehavin’ in Retirement Plans: It’s Time to Retire That Thinking.”
“We are misbehaving in retirement plans. Economics assumes that people and markets are rational. We are human and bound to make mistakes,” Young told the crowd. “We do the wrong thing at the wrong time for the wrong reasons, and we do it over and over again.”
Advisors have the opportunity—and the obligation—to step in and make a difference for participants.
“This is destructive behavior,” Young added. “We have to do better. Because if we don’t, this will continue and people will fail at retirement.”
Young explained a variety of ways advisors can step in, highlighted by pushing plan sponsors to adopt auto-features—especially auto-enrollment and auto-reenrollment.
“We allow ‘opt-out’ to be a one-and-done decision. It’s not enough. We need to auto-re-enroll every year,” he said.
He also advised challenging plan sponsors with aggressive auto-escalation rates. The pushback may not be as great as you think, and the benefits can be life-changing down the road.
Speaking of down the road, advisors also need to help participants think beyond the present and extend their timeframes. “We must plan on decades of retirement,” Young said.
Another thing? Simplify the investment menus. There’s no reason to have 21 different investment options in a retirement plan. “We provide too many choices to people and it overloads them—they freeze up and get sick,” Young said. “We’ve got to do better. We should have less.”
Bottom line? Be bold. Challenge Sponsors. Put the facts on trial. Focus on improving participant outcomes.
“What we do matters,” Young concluded. “You change people’s lives, one plan sponsor, one participant at a time.”
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