The majority of retirement plans have set participants on the road to ruin, but annual checkups by plan sponsors and the canny use of behavioral finance can change that.

That's according to a white paper from Voya Financial, which said that 82 percent of plans are not on track to meet their investors' long-term savings needs. But the use of academic research by the new Voya Behavioral Finance Institute for Innovation, the firm said, can provide the means to better outcomes for participants.

The report said that people tend to make decisions in one of two styles:

  • System 1, which is "fast, instinctive and unreflective."

  • System 2, which is "slow, deliberate and requires significantly more attention and effort."

Since System 2 is more cumbersome, people "tend to avoid it."

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And that's unfortunate because "data suggests that most participants stick to the path of least resistance and rarely revisit their choices," the report said, adding that "[o]ne study finds that 72.8 percent of participants have not changed the allocation of their account balances over a ten-year period and 47.1 percent have not changed the allocation of their contributions."

Scoring participants on how much time they've spent in making their decisions about plan choices, identifying their decisionmaking styles and correlating those with retirement outcomes provides a way to "identify interventions that are psychologically appropriate for the typical plan participant and capable of significantly improving their retirement outcomes."

Depending on participants' profiles, auto-enrollment, default choices and encouraging participants to reevaluate their choices periodically for risk and long-term suitability are all tools that can encourage participants to change the way they make those plan choices, thus improving outcomes.

System 1 decisionmakers, who make choices quickly and instinctively rather than through due consideration, are more likely to be helped by auto-enrollment and default choices.

System 2 decisionmakers—who may have taken much more time and thought to choose investments, but perhaps not revisited their choices in years—are more likely to benefit from an encouragement to reevaluate their portfolios.

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