New AB research discovers three sharply different investor personas--and degrees of retirement readiness--among DC plan participants

While 12% scored as "Whiz Kids" on our financial literacy quiz, 26% were "In the Dark." Survey shows that those "In the Dark" are less prepared for retirement but can benefit from targeted engagement methods to gain better retirement outcomes

Dec 03, 2015, 08:00 ET from AB

NEW YORK, Dec. 3, 2015 /PRNewswire/ -- AllianceBernstein L.P. ("AB") today announced new research showing a continued decline in defined contribution (DC) plan participants' understanding of investing in general and target-date funds (TDFs) in particular. These findings reflect the broader lack of financial literacy among US workers, but also revealed that a new categorization of investor personas can help plan sponsors improve participants' knowledge and confidence, and lead them to greater retirement readiness. 

As retirement confidence among workers remains chronically low and few participants see a comfortable retirement as a reality, targeted investor education and communications are more critical than ever. Grouping participants based on common financial attitudes and differentiating distinct investor personas—"Capable," "Eager" and "Conservative" —will allow sponsors to accurately address employees' investing needs, strengths and weaknesses and help them attain better retirement savings outcomes.

"While it is disappointing that employee investing confidence continues to decline, this year's survey shows that trend is reversible if plan sponsors tailor their outreach based on specific investor personas," said Richard Davies, Senior Managing Director and Global Head of Defined Contribution at AB. "Targeted engagement methods may make it possible to increase the knowledge of participants who lack financial literacy, and the confidence of those who are overly conservative."

Misperceptions around TDFs have also risen, with target-date users being less knowledgeable about their TDFs than participants in AB's 2014 survey, as well as in comparison to target-date nonusers. An overwhelming 87% of participants, however, reacted favorably when asked how they would feel if their employer automatically invested their contributions into a TDF. And if it were a target-date solution with a guaranteed income stream for life, the response was even more favorable. Nearly 90% of all employees indicated they would keep some or all of their contributions in a guaranteed-income TDF if plan sponsors automatically enrolled them into one of these funds.

"America's retirement readiness is nowhere near what it needs to be. It is even more troubling that we are seeing a decline in workers' retirement savings knowledge from previous years," said Davies. "It is not surprising that in this environment of declining confidence and misunderstandings, participants would benefit from features like auto-enrollment and auto-escalation into TDFs as a means to getting them started and saving more for their retirement."

In many cases, survey results show that more financial literacy goes hand in hand with higher engagement, higher contribution rates and higher confidence. Lower financial literacy can turn the freedom of choice—a cornerstone of DC plans—into the freedom to fail.

The survey findings were compiled from AB's survey of plan participants—the 11th since 2005. It offers a comprehensive look at the attitudes and behaviors of workers toward retirement saving, the changing state of DC plans, and the concerns, perspectives and strategies of plan sponsors. The full report is available at

Key findings include:

Retirement Confidence Is Chronically Low: 42% of workers state the key reason is that they're not saving enough. Workers' top concerns also remain the same as in previous years: they don't think they'll have enough money to live as they do now.

  • Few workers see a comfortable retirement as a reality: A quarter of them plan to delay retirement, while 32% say they will continue to work part-time. Curiously, a quarter of them say they'll get a pension, even though more companies are terminating or freezing their defined benefit plans.

Financial Literacy: Too Many Unknown Knowns: Higher engagement, contribution rates and confidence are at stake.

  • Many of our respondents did not fare too well when we asked eight simple investing questions: Only 12% of respondents were "Whiz Kids" and got all eight questions right. One-third answered three to five questions correctly, while one-fourth remain "In the Dark," with two or fewer correct answers.
  • Financial literacy is more than just academic: On average, participants who feel knowledgeable and are comfortable making their own investment decisions contribute at a rate two full percentage points higher (8%) than that of less confident investors (6%).

Misinformation, Hesitancy and Confusion: Workers' knowledge and comfort levels with investing are on the decline. 

  • Misperceptions are rising among target-date users: 23% of participants don't know if they invest in a TDF or not. More target-date users (34%) than last year (22%) also incorrectly believe that their TDFs automatically "guarantee you'll meet your income needs in retirement."
  • Comfort levels reveal declining confidence in investing capabilities: Less than half of participants say they want to select their own mix of individual funds or are comfortable deciding how much to invest in each fund. Even fewer, at 43%, have the time to keep an eye on investments and make changes as they get closer to retirement.

Lifetime Income: The Perennial Wish-List Favorite: 69% cite "a steady stream of income" as a top feature they want in their DC plan. Nearly 90% would keep some or all of their contributions in a guaranteed-income TDF if their employer automatically enrolled them in it.

  • Guaranteed income topped employees' wish list of retirement plan features in our past seven surveys: 54% of plan participants would be likely to invest in a guaranteed-income TDF. Surprisingly, 78% of nonparticipants agree, and feel it would enhance their desire to join their company's retirement plan.

Who's Who Among Participants: With knowledge and engagement levels declining, designations from previous surveys of "Active" or "Accidental" investors are not enough. This year, the survey took it one step further and grouped participants based on common financial attitudes and interests. Roughly one-third of full-time participants fell into one of three categories:

  • Capable, confident investors feel knowledgeable about investing and do well on our financial literacy tests, but may not truly comprehend the potential pain of taking too much risk. Sponsors can improve their engagement by delivering targeted articles on specific investing risk/reward hazards.
  • Eager, young, unaware participants have high enthusiasm and confidence but very low scores on our investing quiz. Sponsors should demonstrate the long-term, cumulative difference that results from higher contributions early on to show the growth advantages of long-term investing, and also make the most of social media.
  • Conservative, cautious savers have low confidence and low investing acumen, but are diligent savers and know more than they may realize. Sponsors should show them time is on their side and demonstrate the damaging risk of a savings shortfall from an overly safe approach to increase their willingness to invest.

Sponsors and providers should consider these personas when approaching participants with targeted communications and engagement methods.

About the Survey
AB's DC team has conducted annual surveys of employees since 2005 and biennial surveys of plan sponsors since 2006. These surveys help us understand the attitudes and behaviors of workers toward retirement saving, the changing state of DC plans, and the concerns, perspectives and strategies of plan sponsors. We conducted our 11th annual web-based plan-participant survey in May and June 2015. It was based on a national sample of 1,009 employees who were eligible for their companies' retirement plans, were at least 18 years old and worked for firms that offered DC plans.

About AB
AB is a leading global investment-management firm that offers high-quality research and diversified investment services to institutional investors, individuals and private wealth clients in major world markets.

As of September 30, 2015, AB Holding owned approximately 36.2% of the issued and outstanding AB Units and AXA, one of the largest global financial services organizations, owned an approximate 63.4% economic interest in AB.

Additional information about AB may be found on our website,