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How Retirement Plan Investment Options Can Work for Your Employees

Pat Kavanaugh, Morningstar Investment Management LLC


By now we all know the challenges we face with retirement: Employees aren’t preparing for it. Employers aren’t sure how—or whether—they can do anything to make a difference. Even benefits experts have struggled with how to solve the problem of people not saving enough for retirement. But what if you could offer retirement plan investment options that helped your employees plan and save?

We think you can. We study the factors in financial planning that may help reduce the behavioral barriers to saving for retirement and those that may help lead to accumulating greater wealth. The retirement plan investment options you offer your employees can make a difference. Here’s our evaluation of several:

3 Retirement Plan Investment Options That Can Help

  1. Target-Date Funds: A standard target-date fund offers an investment portfolio that considers a retirement date. This off-the-shelf solution reflects what the fund manager believes is the best asset mix for the average investor by age. In some cases, the solution may consist of only the recordkeeper’s or target-date fund provider’s proprietary funds, which may not be the most suitable options. But for employees, it can be an easy option that encourages them to take advantage of their retirement benefits.

  2. Custom Target-Date Funds: Like a target-date fund, a custom target-date fund is a one-stop investment option for participants. It presents an asset mix and investment selection for various retirement dates, but it may also take into account the demographics of the employees at a company. Built from funds the sponsor selects for the plan lineup, this solution provides more visibility into how these solutions are constructed. And often, fees are tied to assets under management. So the more assets participants put into the funds, the greater the cost savings is to the plan sponsor and the employees.

  3. Managed Accounts: Using data about individual employees, managed accounts offer personalized portfolios that are professionally managed. Next to retaining the services of a financial advisor, it’s the option that could offer employees a full retirement strategy, including a recommended savings rate, a target retirement date, and a retirement income projection and goal.

Please see below for an important disclosure.

Which Retirement Plan Investment Option is Right for You?

If you need more information to determine which option might be best for your plan, you can read our full analysis. "How Can You Help Your Employees Retire?"
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Important Disclosure

Morningstar Investment Management LLC is a registered investment adviser and subsidiary of Morningstar, Inc. The Morningstar name and logo are registered marks of Morningstar, Inc. Opinions expressed are as of the date indicated; such opinions are subject to change without notice. Morningstar Investment Management and its affiliates shall not be responsible for any trading decisions, damages, or other losses resulting from, or related to, the information, data, analyses or opinions or their use. This commentary is for informational purposes only. The information data, analyses, and opinions presented herein do not constitute investment advice, are provided solely for informational purposes and therefore are not an offer to buy or sell a security. Before making any investment decision, please consider consulting a financial or tax professional regarding your unique situation.

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