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BlackRock 401(k) Survey of DC Participants Shows 'Shocking Gap' Between Behavior and Intent

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Most employees participating in defined contribution plans say 401(k)s are more important to them than before the 2008 financial crisis, but their behavior shows a “shocking gap” between their ideals and their ability to save, a new BlackRock survey shows.

While experts estimate that defined-contribution (DC) investors should save 10% to 12% of income annually, the reality is that most people only manage to set aside between 6% and 7%, said Alan Mason, managing director and global head of structured solutions portfolio management for New York-based BlackRock Inc.

“We have a shocking gap between the theoretical ideal and the actuality that we have to continue to address,” Mason said in a presentation of BlackRock’s second annual 401(k) participant attitudes and behaviors survey at the firm’s Manhattan headquarters on Tuesday, June 29.

The gap between the ideal and reality can best be closed in two different ways, Mason said. First is the company match. Second is an auto-escalation saving feature that allows companies to take the initiative to move participants’ balances into a managed account.

The survey reported that of the 77% of participants who knew their employer’s match deferral rate, 83% said they were investing at that rate to receive the full match.

As for the auto-escalation component, where companies automatically increase employees’ savings rate a bit each year, the survey found that more plans are auto-enrolling entire populations, which helped push up participation rates to 80% in 2009 from 77% in 2006. Three out of four survey participants said they were happy to go along with such automatic features and only one out of 10 said they would feel “resentful” if the company made that decision for them.

A total of 33% of participants believed that auto-escalation was “very influential” in helping them save more. Other influences included a change in financial situation (44%), improvement in the economy (38%), knowledge of how much money is needed to retire comfortably (34%), and whether a financial professional encouraged the investor to save more (15%).

Also according to the survey, 76% of 401(k) participants in 2010 reported a positive reversal in their balances compared to 2009. At the same time, while 65% of participants were confident about their future ability to retire compared to 53% a year earlier, 49% reported feeling less confident about managing their retirement investments since the economic downturn of 2008.

The survey was performed by Boston Research Group Inc., a private research firm headquartered in Hopkinton, Massachusetts. Boston Research conducted the survey online during the month of March with 1,000 employees who actively participate in their companies’ 401(k) plans.

“We continue to see that participants are firmly behind the idea of having a 401(k) plan,” said Boston Research President Warren Cormier at the presentation.

Cormier also identified a “new trend” that shows the great majority, 74%, of participants affirming the importance of contributing to 401(k) plans regardless of age.

“The DC industry is getting the point out to people no matter how old or young they are that retirement saving is important,” he said.

Last year on June 11, BlackRock announced that it would acquire San Francisco-based Barclays Global Investors for $6.6 billion in cash and 37.8 million shares of BlackRock common stock and equivalents, creating by far the largest asset management firm in the world–BlackRock Global Investors–with $2.7 trillion in assets under management. The deal, which closed in the fourth quarter of 2009, was valued at $13.5 billion. The former Barclays Global Investors, still based in San Francisco, manages BlackRock’s defined-contribution 401(k) unit.

Read a story about BlackRock’s 2009 acquisition of Barclays Global from the archives of