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Survey: majority of 401(k) investors take apathetic approach to evaluating plans

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More than half (55 percent) of 401(k) investors never rebalanced or changed their investment options in 2008. About a third of 401(k) investors have no idea what percentage of their account is invested in U.S. stocks, foreign stocks or fixed income, nor did they open their fourth-quarter statements, according to a survey by registered investment advisor I-Pension LLC. Of those who did read their statements, 72 percent spent less than three minutes reviewing the results.

“These results point out that a lot of work still has to be done to help 401(k) participants maximize this incredibly valuable workplace benefit,” says Jane Mancini, CEO of I-Pension. “The markets were down dramatically in 2008, but well-diversified portfolios were still the best choice for most investors.”

More than 80 percent of respondents indicated they made their 401(k) investment decisions on their own. These same respondents said they would be likely to request assistance if their employer provided access to investment advice.

“If there’s one positive that has come out of the horrible economic news of the past year, it’s the realization that middle-income workers need serious and intensive help managing their investment portfolios,” says Mancini. “Working together, plan sponsors, 401(k) providers, and investment advisors need to deliver a more hands-on solution in an easy and affordable package.”

Although the move faces ongoing criticism, the U.S. Department of Labor finalized a rule in January that will allow employees in 401(k) type plans and individual retirement accounts (IRAs) more accessibility to investment advice from employer-sponsored financial services firms. The rule includes a regulation that implements the new statutory exemption for investment advice added to the Employee Retirement Income Security Act (ERISA) by the Pension Protection Act (PPA) and a related class exemption. One of the ways investment advice may be given through the new exemption, according to the U.S. Labor Department, is through the use of a computer model certified as unbiased. The other way is through an advisor compensated on a “level-fee” basis. Several other requirements also must be satisfied, including disclosure of fees the advisor is to receive. Fee-leveling will be implemented to remove incentives for biased investment consulting.


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