Set-it-and-forget-it prevails in worker retirement accounts

More workers than ever are participating in their company-sponsored 401(k) plans but most people are still setting it and forgetting it.

"In the last decade, employers have made strides in helping workers prepare for retirement by adding plan features that make saving and investing easier," says Rob Austin, director of retirement research at Aon Hewitt. "At the same time, employees continue to take a passive role in managing their 401(k) plans."

Participation in 401(k) plans jumped to 79% at the end of 2014, according to Aon Hewitt, which is the highest level since the company began tracking 401(k) participation in 2002, but even with that higher participation, employees are still not actively managing their accounts.

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An analysis of 138 defined contribution plans with 3.5 million workers revealed that nearly one-quarter of them increased their contribution rates in 2014, but only 15% rebalanced their portfolios, making 2014 one of the lowest trading years on record, Aon found.

If you take target-date funds and pre-mixed portfolios out of the equation, only 19% of workers rebalanced their portfolios last year. Aon Hewitt also found that workers were invested in just 3.6 different funds on average, down from 3.7 in 2013 and 3.9 in 2012.

Account balances hit an all-time high of $100,320 in 2014, up from $91,060 in 2013.

Also see: Workers missing out on billions in unclaimed employer matches

Aon Hewitt recommends that employers take three steps to help their employees make the most of their DC plan investments:

• Offer tools. A recent study by Aon Hewitt and Financial Engines found that workers who took advantage of help tools like managed accounts, online advice and target-date funds do better than workers who manage their retirement accounts themselves.
• Simplify the fund line-up. According to Aon Hewitt, “offering multi-manager, white-label or objective-based funds can make the investment process less complex for participants while providing them with better diversification.” These types of funds are cheaper and produce better returns than other options, which help employees do a better job of saving for retirement.
• Offer lifetime income options. Most workers today don’t have access to a traditional defined benefit plan and guaranteed lifetime income because they only have access to their workplace 401(k) plans. Offering lifetime income options within a DC plan line-up can help workers turn their accumulated retirement savings into income in retirement.

Also see: Bipartisan bill promotes lifetime income illustrations on retirement plan statements

 "Encouraging lifetime income is important to many employers, though it's primarily leading-edge companies that are implementing these options for their workers," Austin says. "We expect to see more companies move in this direction as they gain a better understanding around new laws on longevity annuities and as the price, availability and quality of these types of products continue to improve."

Paula Aven Gladych is a freelance writer based in Denver, Colorado.