What Workers Want, and Aren’t Getting, From Their 401(k) Plans

A new survey from Betterment for Business finds that participants want on-demand advice and need financial education

Betterment CEO Jon Stein. Betterment CEO Jon Stein.

A new survey from Betterment for Business, the firm’s 401(k) operation, finds that many plan participants want a lot more service than their plans provide, including personal financial advice and need financial education.

(Related: Workplace Retirement Accounts Aren’t Working, Policy Wonks Say)

Fifty-three percent of respondents reported that they receive “absolutely no advice on their retirement investments.” Many preferred receiving advance on demand, when they need it and through easily accessible channels such as email, plus one-on-one sessions. Millennials expressed the most interest in receiving advice more frequently than once a month.

(Related: Betterment for Business Adds Ex-DOL Official to Advisory Board)

Among the 47% who want advice, two-thirds use a financial advisor and most (79%) reported that they trust their advisor either completely or substantially.

(Related: Retirement: life’s most expensive purchase)

The survey was conducted online by Market Cube in July and August and consisted of 1,051 consumers who work for companies with less than 1,000 employees, have a work email address and contribute to their 401(k) plan.

Less than half of the respondents knew the definition of a fiduciary and 20% thought that the terms “fiduciary” and “financial advisor” were synonymous. Among those aware of the Labor Department’s fiduciary rule, 84% neglected to take an action such as asking their advisor if he or she was a fiduciary. Almost half of those who did ask changed advisors.

Another example of the need for financial education: the finding that 16% of participants with a 401(k) match failed to contribute the maximum amount that could be matched, and 7% didn’t know whether they were offered an employer match.

The survey found that nearly all respondents (94%) whose plans include auto-enrollment participated in their 401(k) plan (they have the ability to opt out), and 78% took advantage of the auto-escalation feature, if it was available. But some said they chose to save less now knowing that the deferral rate would increase in the future because of auto-escalation.

On the Friday before Betterment for Business released the survey, it convened a meeting with the members of its advisory board and the press chaired by its founder and CEO, Jon Stein, to discuss how 401(k) plans can best provide participants with the benefits they need.

Board members suggested several improvements to the current system, including enhancements to automatic enrollment and auto-escalation of contributions.

“Three percent is not enough,” said consultant Judy Mares, a former deputy assistant secretary for policy in the Labor Department’s Employee Benefits Security Administration, referring to the traditional auto-enrollment contribution rate.

Laraine McKinnon, a former BlackRock executive and founder of the LMC17 consulting firm, discussed the benefits of re-enrollment by 401(k) plans, which has the potential to increase participation and contributions.

There are several primary times when plans choose this method, according to McKinnon: When the default contribution rate is increased, say from 3% to 6% or more, allowing employees to re-enroll at the higher contribution rate or enroll for the very first time after choosing earlier not to participate; when the auto-escalation rate is increased; and when investment options change, including Qualified Default Investment Alternatives (QDIAs), allowing participants to choose more suitable investments.

The most popular QDIAs currently are target date funds, balanced accounts and managed accounts, which have all replaced the old stable value stalwarts, as a result of regulations.

The panel also discussed other potential improvements to the 401(k) space including the increased availability of multi-employer plans, similar to the American Bar Association arrangement, where even self-employed attorneys can participate; portability of plans because employees frequently change jobs; and state initiatives to create plans for workers who don’t have them at work. (Congress has overturned an Obama-era rule designed to encourage states to create retirement savings programs for low-income workers. States can still create those plans so long as they follow more restrictive follow federal laws that protect the workers' investments.)

All panel members agreed that technology can play a crucial role in getting more people to participate in 401(k) plans, increase contributions, avoid investment mistakes and understand the finances of their entire household rather than just their own.

Stein said the purpose of Betterment for Business is to provide the kind of advice that helps bring investors “the feeling of defined benefits in a defined contribution world … They want to know that they’re on track, they want to know that they’re covered.”

Betterment is currently the largest independent robo-advisor, with $10 billion in assets. 

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