Constructing a simpler menu of investment choices can help plan sponsors’ employees get more from their DC plan, according to a BMO white paper released in the U.S.
To implement this, and, in turn, help participants save more money in their retirement accounts without adding to an employer’s expenses, BMO Retirement Services has identified three key criteria:
- the number and variety of core investment options should be no more than that which is needed to construct a sensibly diversified portfolio;
- The objectives of each option should be clear and well differentiated; and
- core options should be selected based on the needs of the majority of the plan’s participant population and not directed at a small or sophisticated segment.
Most DC plans should have no more than nine investment options, with a family of target-date funds (TDFs) serving as a single choice, says Todd Perala, director of strategic initiatives, retirement and trust services, with BMO Global Asset Management.
He adds that TDFs provide plan participants with easy-to-access and easy-to-implement solutions that may help them reach their complex financial goals and may be uniquely qualified to serve as the most enlightened qualified default investment alternative.
Related articles: