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Participants Happy With 401(k) Choices

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A survey released in February by TIAA-CREF found that most retirement plan participants are happy with their investment choices, even if they aren’t familiar with all of them. The survey found 85% said they’re comfortable with their choices, while only 61% said they were familiar with all the options available in the plan.

Ed Moslander, senior managing director and head of institutional client services for TIAA-CREF, believes that’s at least in part due to participants’ trust in their employer and plan sponsors.

“I think employees trust the employer to have done due diligence around the products on the investment menu,” he told ThinkAdvisor on Thursday. “To some extent, I think they’ve ceded that to the employer and whatever fiduciary the employer signed up with to select appropriate investment products for their retirement plan.”

More than half of respondents in the TIAA-CREF Investment Options Survey said the number of investment options available in their plan is just right, but one in five said there are too many. Although almost the same percentage said there were not enough options, Moslander said that in his experience, participants are more likely to be overwhelmed by choice, not underwhelmed. “I doubt there’s very frequently too few [choices]; that may be an education issue. People may just not know what the funds on the plan menu are, but certainly there’s been an issue out there with too many.”

He said the ideal target for sponsors is between 10 and 20 options that cover the primary asset classes. That level of choice is “absolutely enough,” Moslander said. “You don’t need more than that, and I think you can do very well with 10.”

He attributed sponsors’ tendency to add more options to a desire to “mitigate some level of fiduciary risk,” but that’s changing. “It’s taken some time, but we’ve seen that in our marketplace, that menus have gone from too many down to a more reasonable number that people can actually digest,” he said.

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Despite the ubiquity of target-date funds in retirement plans, only 10% of respondents in TIAA-CREF’s survey said they are invested in one and 47% said they don’t have that option. The survey found 67% of respondents were unfamiliar with TDFs.

“I think almost all our plans now have target-date funds, but fewer of our plan sponsors default people into them,” Moslander said. “People still make an allocation decision for the most part in our marketplace.”

Among those few respondents who were invested in a target-date fund, most wanted them to get steadily more conservative while still keeping an eye on growth. However, almost a quarter said they didn’t want the fund to grow more conservative at all.

Moslander said there’s been some debate “among those of us who manufacture target-date funds” about whether those funds should maintain a higher equity component for longer, considering participants’ longer life expectancies. “That’s a view that the longevity issue, the inflation issue, leads product producers to leave the equity component high,” he said.

— Check out Finke: Should Retirees Be Stocking Up on Stocks? on ThinkAdvisor.