About Letort Trust

LeTort Trust is an Independent Trust Company with a single focus of providing personalized financial solutions to individuals, businesses and institutions. As an Independent Trust Company, we are held to the highest standards of fiduciary accountability in the industry. Our clients depend on the prudence and expert guidance we provide through our customized wealth management and retirement plan services.


Creating a Better Investment Option Menu for Your Employees: A Study in Chocolates

Employer fiduciary responsibility is generally on the forefront of an employer’s mind when designing an ideal 401(k) Plan for their employees.  Many employers have come to the conclusion that offering an almost unlimited amount of investment options, bells and whistles is the best route to providing their employees the finest retirement savings plan while limiting liability to the employer.  What many employers do not know is that there are a multitude of studies in behavioral finance, as well as plan demographic studies, that have proved this conclusion wrong.

In a paper titled When Choice is Demotivating: Can One Desire Too Much of a Good Thing? (Journal of Personality and Social Psychology, Vol 79(6), Dec 2000, 995-1006), Sheena S. Iyengar and Mark R. Lepper use a simple experiment to test the effect of choice.  In this experiment, subjects were split into multiple groups: one of which having to choose from 30 different chocolates, and another having to choose from 6.

Those with 30 choices took longer to make a decision, felt they had too many choices, felt excited yet frustrated by the number of choices, and were less satisfied with their decision after the experiment concluded.  Those with 6 choices decided quicker, had less frustration and were more satisfied with their decision after the experiment concluded.

What does chocolate have to do with retirement savings?  Think of the average employee sitting down to complete his employer’s retirement plan paperwork.  Does he have 30 choices, 6 choices or no choice at all?  Will he be frustrated, regret his decisions or, worse yet, become overwhelmed and not enroll at all?

Iyengar, a Professor of Management at Columbia University, not only studies chocolates, but has teamed up with The Vanguard Center for Retirement Research to study plan participant behavior in correlation to investment choice.  In the attached article from Plan Sponsor Magazine their findings surmise that for each additional 10 investment choices, plan participation rates are cut by 2%.  When an employer is trying to get employees to save for retirement, a 2% cut (or more) in participation rates is just not acceptable.

When crafting a retirement savings plan for your employees, choice can sometimes be good; however, you must first consider the investment knowledge level of your employee population.  Many employees are happy not having to make a choice and will accumulate more savings over time by not having the potential to make erroneous investment decisions.  For others, some type of choice works best; however, keep in mind that too much choice can lead to frustration, dissatisfaction and decision paralysis.  Be sure to look at your employee base as a whole and design a plan that will not only get them saving, but also help them multiply those savings by giving them easy and appropriate investment options to meet their goals.