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Time for a reset?

Jun 1, 2020
Empower Institute

A framework to calculate the benefits of a plan reset for plan fiduciaries

Individuals who make their own investment decisions in a defined contribution retirement plan often do not have appropriately diversified investment allocations for their age. These inappropriate allocations can be costly under normal circumstances. In a volatile or bear market, those costs can increase significantly.

By offering a way to reset a retirement plan to the default investment options, plan fiduciaries can help guide self-directed investors back to age-appropriate investment allocations. In this white paper, we review the ways self-directed investors’ decisions deviate from the benchmark. We then establish a way to estimate the annual benefit to investors from a plan reset and provide a framework to help individual plan sponsors determine if a plan reset is appropriate given their plan population.

Key findings:

  • In general, self-directed investors lose one basis point in utility for every percentage point of deviation from their ideal equity allocation.
  • On average, self-directed individuals across different age groups lose approximately 64 basis points of expected return compared to the default investment when risk is controlled.
  • Plan resets can be an effective tool to mitigate losses related to less-than-optimal diversification strategies pursued by self-directed investors.


Time for a reset? Research paper

Download Research Paper

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Carefully consider the investment option’s objectives, risks, fees and expenses. Contact Empower Retirement for a prospectus, summary prospectus for SEC registered products or disclosure document for unregistered products, if available, containing this information. Read each carefully before investing.

Securities offered and/or distributed by GWFS Equities, Inc., Member FINRA/SIPC. GWFS is an affiliate of Empower Retirement, LLC; Great-West Funds, Inc.; and registered investment adviser, Advised Assets Group, LLC. Investing involves risk, including possible loss of principal. This material is for informational purposes only and is not intended to provide investment, legal or tax recommendations or advice.

IMPORTANT: The projections, or other information generated on the website by the investment analysis tool regarding the likelihood of various investment outcomes, are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results. The results may vary with each use and over time.

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