While American employees appreciate having a 401(k) plan, the majority will likely spend more time planning for a new car purchase or vacation than researching their plans investment options.
This retirement disconnect is not surprising, according to Schwab Retirement Plan Services, which released a survey this week of more than 1,000 401(k) plan participants. We often see that participants are hesitant to take action when theyre not completely comfortable with the matter at hand, and this is especially true when it comes to financial decisions, says Steve Anderson, head of retirement plan services at Charles Schwab.
Aside from health coverage, the survey found nearly 90% of workers agreed that the 401(k) is a must-have benefit, more than extra vacation days or the ability to telecommute. However, employees said they spent more time researching options for a new car (about 4.3 hours) or vacations (about 3.8 hours) than researching their 401(k) investment choices (2.1 hours).
The fact that an overwhelming majority of workers demand 401(k)s is good news, because it shows that people understand that they are responsible for their own retirement, Anderson tells EBN. Participating in a 401(k) program helps workers develop the discipline to save, and the earlier they begin to save, the more prepared they will be for retirement.
Meanwhile, about half of plan participants said that their defined contribution plans investment options can be more confusing than their health benefits options. But gaining the needed assistance to understand the real value of their retirement plan was not top-of-mind for employees, as respondents said they were more likely to hire someone to perform an oil change to their vehicle, landscape their yard or help with their taxes than to seek out assistance for their 401(k) investments.
Anderson adds that while educational resources from plan sponsors may be just what employees need to make sound investment decisions, he says that if participants have to seek out these resources on their own, chances are they wont utilize them to their full benefit.
Even with the prevalence of auto-enrollment and auto-escalation, employers may still have to do more. Only one-quarter of employees with access to professional 401(k) advice report having used it, says Anderson.
Now employers can take the next step in plan design by proactively delivering advice to their employees, Anderson explains. We know getting advice can make a big difference for workers, as weve witnessed the impact of 401(k) advice on participant outcomes.
For example, 70% of respondents noted that they would feel extremely or very confident in their investment decisions if they used a financial professional. Meanwhile, only 39% highlight the same confidence level if they opted to make those investment choices themselves.
Participants who receive advice save more, are better diversified and stay the course in times of market volatility, Anderson explains.
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