Designing Retirement Plans with Goals-Based Investing in Mind

Introduction

Goals-Based Investing (GBI) shifts the focus from traditional benchmark-relative performance to helping participants achieve their personal financial objectives, such as retirement readiness, buying a home, or funding education. Designing retirement plans with GBI principles in mind enhances participant engagement, improves decision-making, and fosters better outcomes.

Key Principles for Designing GBI-Focused Retirement Plans

1. Participant-Centric Plan Design

• Understand Participant Demographics and Needs: Segment participants by age, income, tenure, and financial literacy to tailor investment options and communications.
• Facilitate Goal Setting: Incorporate tools and platforms that allow participants to define, track, and update personalized financial goals within the plan.

2. Flexible and Goal-Aligned Investment Options

• Multi-Goal Portfolios: Offer investment solutions designed around common participant goals (e.g., retirement, college funding, emergency savings) rather than just risk profiles.
• Target-Date Funds with a Twist: Consider enhancing traditional target-date funds with goal-specific features or offering multiple target-date options aligned with different life goals.
• Customizable Risk Profiles: Allow participants to adjust portfolios based on their unique goals and risk tolerance, supported by education and advice.

3. Integrated Financial Planning Tools

• Goal Simulation and Forecasting: Provide interactive tools that project savings growth, income replacement ratios, and potential shortfalls.
• Scenario Analysis: Let participants explore “what-if” scenarios to understand the impact of contribution changes, retirement age shifts, or market fluctuations on their goals.
• Automated Recommendations: Use AI-driven advice engines to suggest contribution rates, asset allocations, and plan features aligned with participant goals.

4. Enhanced Participant Engagement and Education

• Personalized Communications: Deliver tailored messages based on participant goals, progress, and behaviors.
• Ongoing Education: Offer webinars, workshops, and digital content focused on goal-setting, investment basics, and retirement planning.
• Behavioral Nudges: Implement reminders and motivational prompts encouraging actions like increasing contributions or rebalancing portfolios.

5. Plan Features Supporting Goal Achievement

• Automatic Enrollment and Escalation: Encourage participation and gradual increase in contributions to help participants stay on track.
• Flexible Contribution Options: Support after-tax (Roth) contributions, catch-up contributions, and multiple contribution sources to optimize savings.
• Loan and Withdrawal Policies: Design policies that balance participant liquidity needs with preserving long-term goal progress.

6. Robust Data Analytics and Reporting

• Track Goal Progress: Use participant-level data to monitor how many are on track to meet their goals.
• Aggregate Insights: Analyze plan-wide trends to identify gaps and opportunities for plan enhancements.
• Feedback Loops: Use data to refine plan design, communication strategies, and educational content.

Implementation Steps

1. Assess Current Plan Design and Participant Needs

   • Conduct surveys and data analysis to understand participant goals and behaviors.
   • Review existing investment lineup and plan features for goal alignment.

2. Select or Develop GBI-Enabled Platforms

   • Partner with providers offering goal-based advice, planning tools, and multi-goal investment options.

3. Revise Investment Options and Plan Features

   • Introduce goal-specific portfolios and flexible contribution mechanisms.

4. Launch Participant Engagement Campaigns

   • Educate participants about goal-setting and how the plan supports their objectives.

5. Monitor, Measure, and Adapt

   • Use KPIs (as discussed previously) to track success and continuously improve the plan.

Benefits of GBI-Focused Retirement Plans

• Improved Participant Outcomes: Higher likelihood of meeting retirement and other financial goals.
• Increased Engagement: Participants feel more connected to their savings and motivated to act.
• Reduced Sponsor Risk: Better participant outcomes can reduce future financial stress and administrative challenges.
• Competitive Advantage: Innovative plan design can attract and retain talent.

Conclusion

Designing retirement plans with Goals-Based Investing in mind requires a holistic approach that integrates participant-centric features, flexible investment options, advanced planning tools, and ongoing engagement. By aligning plan design with participants’ real-life goals, sponsors can foster better financial security and satisfaction.

Contact us for more information.

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