Case Study: Asset Allocation

Educating Employees About TDFs


Challenge

The benefits manager at a mid-size tech organization found that the majority of its employees who had started with all their investments in target-date funds (TDFs) now had only a portion of their assets in TDFs. Some had allocations in multiple TDFs. The client was concerned that its employees were not using TDFs appropriately.

Our Consulting Strategies

Based on a preliminary analysis, Sibson observed that this problem largely affected certain segments of the population. Interviews with employees from these groups uncovered that many did not understand that TDFs are designed to hold all of their assets in a diversified fund. They had assumed it was better to spread their assets across different investment vehicles and not “put all of their eggs in one basket.”

Sibson worked with the organization to implement a two-part strategy:

  • During the next open enrollment period (previously designed only for health and welfare benefits), the organization mandated a re-enrollment in the DC plan. Participants who did not re-enroll were automatically enrolled in the single most appropriate TDF (the defined Qualified Default Investment Alternative).
  • Since the auto re-enrollment only applied to future contributions, Sibson worked with the organization to create a communications and educational campaign to address current assets. They provided information on how TDFs work and how to select the appropriate fund. The campaign included companywide emails, explanatory videos and printed educational materials.

A few months after the implementation, Sibson worked with the organization to conduct a survey. It found that almost all employees had a sufficient understanding of TDFs. Employees began allocating their assets into a single TDF and the number of employees with investments in multiple TDFs fell by more than 50 percent.

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The Value

Sibson’s analysis and subsequent interviews helped our client identify employees’ knowledge gaps. This allowed human resources to educate them about the importance of asset allocation and choosing the appropriate TDFs. Ensuring employees invest in the appropriate funds will improve their chances of retiring with sufficient income.

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