Workers Confused by 401(k) Investments, Forgo Advice

Most fail to use professional help when made available

By Stephen Miller, CEBS Aug 21, 2014

Workers say they value 401(k) plans, but most are not taking steps that could help increase their savings, according to a nationwide survey sponsored by Schwab Retirement Plan Services.

Respondents said they are much more likely to have someone change the oil in their car (87 percent) than have someone help them choose their 401(k) investments (24 percent), according to the firm’s August 2014 401(k) Participant Survey. Results were based on 1,000 interviews with 401(k) participants who work for companies with at least 25 employees.

On average, plan participants spend roughly the same amount of time reviewing and choosing investments for their 401(k)—a lifetime savings vehicle—as they do investigating cellphones, which are often traded in from year to year, the survey revealed. And participants spend more than twice as much time researching cars before buying one than they do evaluating their 401(k) options.

“Today, responsibility for managing their own retirement investments rests squarely on workers’ shoulders,” noted Steve Anderson, head of Schwab Retirement Plan Services, in a news release announcing the findings. “That responsibility is all the more significant given that a majority are using their 401(k) as their primary or sole source of retirement savings.”

Stressed and Confused

Many participants are still unsure exactly how their retirement benefits work. The survey showed that participants:

Feel their 401(k) plan investment information is more confusing than their health care benefits information (50 percent of respondents).

Admit they feel a lot of stress when it comes to allocating their 401(k) dollars (34 percent).

Wish it were easier to choose the right 401(k) investments (59 percent).

But while many of the participants believe they would likely benefit from personalized advice, relatively few are actually taking advantage of this resource when it’s offered. Less than one quarter of those with access to professional 401(k) advice say they have used it, the survey revealed.

“In many cases, there is a significant difference between how much people need for a comfortable retirement and what they are actually saving,” said Anderson. “We know that professional advice can play an important role in helping people save more to bridge the retirement gap.”

Actions Drive Outcomes

In addition to using professional investment advice, workers can take other steps to get more out of their 401(k) plans, and many survey participants already are. Some of these positive behaviors include:

Taking advantage of the match. Most (86 percent) participants who get matching contributions from their employer say they are contributing at least enough to receive the full company match.

Increasing contributions. More than half (57 percent) of survey respondents have increased their 401(k) contributions in the past two years. Many say they did so because they were concerned about having enough money to retire comfortably.

Avoiding loans. While many 401(k) plans allow participants to take loans against their account, most of those surveyed seem to recognize that this is a poor choice, as loans can potentially derail a savings plan for years. Three-quarters (76 percent) of respondents have never taken a 401(k) loan.

“While there is certainly room for improvement, we see more workers developing the discipline to save and employers concentrating on impactful plan features like automatic enrollment, automatic savings increases and personalized advice, which can help drive the outcomes we all seek,” Anderson noted.

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

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