Employees Unfamiliar with Investment Options

Most are comfortable with their fund choices, despite many not knowing what their plans offer

By Stephen Miller, CEBS Mar 5, 2015
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Nearly half of employees (46 percent) are concerned about running out of money in retirement. Some of these worries may reflect the fact that 39 percent said they are not familiar with their 401(k) or similar retirement plan’s investment options—an increase from 33 percent in 2014, according to financial firm TIAA-CREF’s 2015 Investment Options Survey report.

Despite the number of people who are unfamiliar with the investment options in their retirement plan, the vast majority of respondents (85 percent) said they felt comfortable with the choices they have made.

The survey polled a random sample of 1,000 adults nationwide to assess their attitudes, preferences and behaviors related to investment options in their retirement plans.

Many ‘Flying Blind’

Of the 39 percent of Americans who said they were not familiar with all of the investment options in their plan, 42 percent said they chose how to invest their savings themselves. Meanwhile, 31 percent said they made no choice at all, placing their savings in their employer’s default investment option, which is increasingly a target-date fund.

Target-Date Fund Confusion

Target-date funds automatically adjust their holdings over time, shifting the percentage of volatile equity (stock) funds with greater growth potential toward a larger share of less-volatile but lower-returning fixed income (bond) funds. But only one-third (34 percent) of respondents who were invested in a target-date fund said they wanted their savings in the fund to grow steadily more conservative as they approached retirement, while another 24 percent said they wanted the fund to maintain growth investments without growing more conservative.

Moreover, only 55 percent of Americans who were invested in target-date funds recognized that various funds differed in their investment mix based on their target retirement dates.

Target-date funds “offer a simple, effective investment option for many people, eliminating the need for individuals to make complicated investment, allocation and rebalancing decisions each year,” said Teresa Hassara, executive vice president of institutional business at TIAA-CREF, in a news release accompanying the survey findings. “It’s clear, however, that many people do not realize there are differences between funds,” Hassara said. Advice and education can help individuals to better understand and choose the target-date fund that aligns with their goals, she noted.

“People today are living longer and facing retirement horizons that could last more than 25 years, so they need an investment choice that recognizes that reality.” Hassara noted. “It's important to choose a target-date fund that maintains [a share of] growth investments through retirement to avoid becoming too conservative too early in one's life.”

Stephen Miller, CEBS, is an online editor/manager for SHRM. Follow him on Twitter @SHRMsmiller.

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