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How Many Fund Choices In A Defined Contribution Pension Plan
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How Many Fund Choices In A Defined Contribution Pension Plan

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A presentation addressing the number of fund choices that should be made available to plan members in a defined contribution pension plan.

A presentation addressing the number of fund choices that should be made available to plan members in a defined contribution pension plan.

Published in: Economy & Finance, Business

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  • 1. How Many Fund Choices in a Defined Contribution Pension Plan ? www.proteusperformance.com
  • 2. Background
    • Over last couple of decades number of fund choices in a defined contribution plan has evolved from a few options to a significant number of choices
    • Natural progression driven by both technological improvements and the desire of plan sponsors to offer their members new options
    www.proteusperformance.com
  • 3. Issues in Plan Design
    • As a plan sponsor issues to consider when selecting the investment options available in a defined contribution plan include:
    • Choice Overload
    • Education
    • Fund Distinction
    www.proteusperformance.com
  • 4. Choice Overload
    • Too many fund choices may lead to the following issues:
    • - Plan member may choose safest option, e.g. money market fund
    • - Plan member may make no choice and be placed in the default option
    www.proteusperformance.com
  • 5. Choice Overload
    • One may ask if there are an optimal number of funds to offer
    • Though there is no one single magic number, the table below provides some guidance:
    www.proteusperformance.com Source: Wells Fargo, 2006 Best Practices in Retirement Plans Survey.
  • 6. Education
    • Increased fund choice is coupled with the responsibility to provide increased education
    • Graph below indicates that financial education efforts can often result in good intentions but very little action
    www.proteusperformance.com Source: CAP Trends & Thoughts, Shaping Retirement Savings Programs and Their Use, June 2007.
  • 7. Fund Distinction
    • A large number of funds can cause plan member confusion
    • Difficult for an employee to differentiate between funds with potentially similar names that are managed differently
    • If there are multiple funds in a given asset class the member needs to be educated on their differences
    www.proteusperformance.com
  • 8. Contact Us
    • To learn more please contact us:
    • Proteus Performance Management Inc.
    • Toronto, Ontario Canada
    • Phone: 416-421-3557
    • Fax: 416-421-1348
    • Email: pension@proteusperformance.com
    www.proteusperformance.com www.proteusperformance.com