The difference between active and passive investment management confuses many Americans, even those who are counting on investment returns for their retirement and, therefore, need to know the difference, according to MFS Investment Management.

The Boston-based global investment manager said a sizable number of Americans have only a limited understanding of the difference between the two investment styles. The confusion was revealed in the firm's recent 2020 MFS Global Retirement Survey, which included 4,000 people worldwide and 1,005 in the U.S. who were enrolled in retirement plans. MFS serves financial advisors, intermediaries and institutional clients.

The fact that many Americans do not know as much as they should about the details of their retirement plans places “a higher burden on plan sponsors to help their employees achieve their retirement savings goals,” according to MFS. In the U.S., only 28% of those surveyed indicated they have a high level of understanding of active management, while globally 61% said they cannot tell the difference between active and passive management styles and 52% think that passive funds are less risky than the overall market, the survey said.

While low cost was cited as a benefit of passively managed strategies, only 27% of U.S. respondents indicated they always picked the lowest‐cost fund regardless of performance, the survey found.

Globally, people are currently falling $70 trillion short of the money needed to support themselves in retirement and the shortfall is projected to grow to $400 trillion by 2050, MFS said.

Despite that savings shortfall, retirement plan participants in the U.S. “show significant confidence in their ability to save for retirement," according to MFS. Specifically, 72% of survey respondents said they are confident in their investment decisions related to retirement versus 66% of respondents globally.

In a somewhat contradictory result, 40% of U.S. respondents admitted they are worried about outliving their assets and 39% are worried they will not have enough retirement income to maintain their lifestyle, the survey said.

Half of respondents in the U.S. said they have consulted a financial professional about their retirement savings, and only 21% said they are using the financial planning resources provided by their employer.

“Plan sponsors and advisors may need to reconsider the educational tools and tactics used in order to better align with the needs of retirement plan investors," Jon Barry, managing director of the investment solutions group at MFS, said in a statement. "A one‐size‐fits‐all approach to educating participants around long‐term investing and asset allocation does not work, and we believe greater partnership is needed between plan sponsors, advisors and savers to drive better, more sustainable investment outcomes."

In that vein, the survey shined a light on misconceptions about target-date funds. Specifically, more than half of respondents said they believe target-date strategies provide a guaranteed rate of return, that investments are held entirely in cash or other low‐risk investments once the participant is retired, and that they provide a guaranteed income stream at retirement.

Elsewhere, survey participants were asked about their interest in sustainable investing. Globally, 76% of respondents said they are interested in having more sustainable investments offered by their retirement plans. In the U.S., where sustainable investing is not valued as much as it is in Europe, 49% of respondents said they believe that retirement investments can be used to address sustainability, or environmental, social and governance issues.

"The data show that ESG is important to participants, and we believe that sponsors should help them understand how sustainability is addressed in the plan menu," Barry said. "Plan providers should consider investment managers who integrate sustainability into their long‐term investment process across their portfolios."