Employers: Most Workers Don’t Make Good Use of 401(k)s
Is a 401(k) retirement plan “adequate” if most workers who use it aren’t prepared for retirement?
That’s the question raised by a new study from benefits consulting firm Towers Watson. The 401(k) system has come under a lot of criticism since the financial crisis hammered workers’ nest eggs. But the study, which polled about 370 large employers, suggests there may be a big gap between how managers and workers view the issue — and that managers don’t necessarily have a high opinion of the hoi polloi.
The discrepancy: Towers found about two thirds — 65% — of employers believed employees had ‘adequate’ retirement and investment planning resources. At the same time only 15% thought employees “made good use” of the resources and only 22% thought employees made “informed decisions” about retirement.
Ouch!
Of course, someone with a more charitable view of the employees might wish employers were asked a follow up question: If your plan is such a failure for the people it’s supposed to help, what exactly is the standard you’re using to declare it “adequate”?
There have been a slew of proposals about what to do to make 401(k)s better. Alicia Munnell, director of the Center for Retirement Research at Boston College, advanced some proposals of her own in a recent Encore post. Her suggestions included turning automatic enrollment and automatic escalation in the contribution rate into mandatory default settings for employees, and requiring that more default 401(k) investments be cheaper options, like indexed ETFs or indexed mutual funds.