Time to clean out the attic of your 401(k)?

Now, I know what you’re thinking. You’re saying to yourself, “I might be driving a different car, but I am living in the same house. Isn’t a retirement (a.k.a. long-term) investment more like a house than a car?”

Well, in a way, you’re right. Notwithstanding the irrelevance of planned obsolescence (which is more pertinent to cars than to 401(k) plans), the metaphor of duration is less relevant than the metaphor of newness. The 401(k) is a relatively new invention. It’s as old as the personal computer. So, let me put the question to you this way: “How many of you are still using a computer built in the 1990s?”

Here’s what we know. Retirement plans have been developed for the benefit of the plan participants. While the industry focused on investments, investment platforms and investment theory, what the first decades of the existence of the 401(k) taught us was plan participants made three mistakes:

1. They didn’t participate;
2. When they did participate, they didn’t save enough;
3. When they do save enough, they tend to invest too conservatively.

Since the turn of the century, there’s been a proliferation in academic research, much of it seeking to find ways to rectify these three common participant mistakes. In the last few years, we’ve seen new plans and plan redesigns that reflect the fruits of this research. For example, auto-enrollment and tiered option menus are fast becoming the norm. And auto-escalation isn’t far behind.

So, I repeat, when was the last time you updated your plan design? If it hasn’t been in the last few years, then you may be betting a secure retirement for your employees on 1990s technology.

See also:

• Herb Brooks and the miracle of the 401(k)
• What’s your plan for your best clients’ 401(k)s?
• 10 best states in which to have a 401(k) [infographic]