Employees Unaware of 401(k) Investment Options

Lack of understanding is tied to reduced savings

By Stephen Miller, CEBS Mar 6, 2014

updated 3/14/2014

One-third of workers (33 percent) who participate in an employer-sponsored retirement plan in the U.S. are not familiar with the plan’s investment options, according to results from financial services firm TIAA-CREF's 2014 Investment Options Survey.

Nationwide, 1,017 adults were polled in January 2014 on their retirement plans, revealing:

A pronounced difference between male and female respondents, with 37 percent of women saying they are not familiar with their plan options, compared with 29 percent of men.

Generational differences, with 43 percent of Generation Y respondents reporting they are not familiar with the options, compared with 33 percent of workers overall.

Most experts recommend saving at least 10 percent to 15 percent of annual income for retirement. Plan participants familiar with their investment options are almost twice as likely to follow this advice—specifically, 39 percent of those in this category save more than 10 percent of their annual income for retirement, compared with 21 percent of participants who are not familiar with their options.

Plan sponsors "must continue to engage and educate employees about these options and how they work, so that employees are not leaving their financial well-being to wishful thinking and guesswork,” advised Teresa Hassara, executive vice president of TIAA-CREF’s Institutional Business, to SHRM Online.

Retirement Planning vs. Choosing a Restaurant

More Americans spent less time in the last year selecting investments for their retirement years than choosing a restaurant, flat screen TV, or tablet, according to a separate 2014 IRA Survey by TIAA-CREF.

The IRA survey polled 1,008 adults nationwide in February 2014 on their behaviors regarding individual retirement accounts (IRAs), with the findings shown in the graphic below.

Source: TIAA-CREF 2014 IRA Survey

401(k) Matches Left on Table

Sixty percent of those who are contributing to an IRA also have an employer-sponsored plan such as a 401(k) or 403(b), the IRA survey found. Among those with both plans, more than half (53 percent) say they contribute to their IRA regardless of whether they have reached the contribution or matching limit of their employer-sponsored plan. This means they could be leaving money on the table if they are diverting money to their IRA before contributing enough to get their employer match.

Plan Sponsors Trusted

Plan sponsors can be the reliable resource that employees seek to help them navigate their investment options. The Investment Options survey revealed that 81 percent of respondents trust financial information offered by their employer, a greater percentage than those who trusted information provided by a traditional financial institution, such as a bank or retirement plan provider (69 percent), or their family (63 percent).

“Plan sponsors can play a really powerful role in helping employees understand their retirement plans, because employees trust them,” Hassara said. “Sponsors can encourage employees to take action through targeted communication, education and advice that resonates with employees based on where they are in their lives.”

Stephen Miller, CEBS, is an online editor/manager for SHRM.

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