Why 401(k) plan participants need more help (in 5 charts)

So much of the innovation in 401(k) planning has a digital component, including online solutions that help workers understand their plans, calculate financial needs in retirement and select investments.

Yet, a large segment of the American workforce is unhappy with the education and services offered as part of the plan. And much of this dissatisfaction speaks to an unmet need that, evidently, no amount of digital automation can fulfill: the ability to consult with a financial advisor about how best to meet retirement planning objectives.

That’s an overarching theme of a new report, “401(k) Wellness in the Workplace Survey.” Spearheaded by KRC Research on behalf of Fisher Investments and Weber Shandwick, the research examines 401(k) plan knowledge, information access and service satisfaction among 1,013 U.S. employees working at companies that offer 401(k) plans.

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Flunking the test

The lack of in-person financial counseling helps to explain a jarring discovery of the report: Many workers don’t know the fundamentals of their 401(k)s and retirement planning. This finding is most notable at small businesses. Nearly 4 in 5 employees (77 percent) that work for companies with 5 to 200 workers failed Fisher’s 401(k) Knowledge Quiz. Many of them don’t know:

• • • • The retirement age at which they can withdraw retirement funds without penalty (83 percent);
      • Plan borrowing provisions available to them (44 percent); or the
      • Investment allocation change (27 percent).

“People tend to get the overall big picture (like their 401(k) match), but when it comes to investment specifics … they quickly struggle,” the survey states.

Struggle they do. The survey also observes that:

• • • • 49 percent of 401(k) plan participants lack confidence in their ability to make appropriate investment selections;
      • 57 percent don’t know the percentage of salary to invest to achieve their retirement goal.
      • 76 percent cannot define a mutual fund; and
      • 66 percent cannot name the provider managing their retirement plan.

The knowledge gap is most pronounced among the nation’s youngest workers: millennials. Just 1 in 5 (20 percent) of workers born between 1980 and 2000 correctly answered Fisher’s 11 pop-quiz questions about their plans. That compares to 40 percent of boomers who passed.

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U.S. workers might be more motivated to tend to their nest egg if they got more financial education in the workplace, the Fisher survey finds. (Photo: Thinkstock)

Low information workers

Marked knowledge gaps also exist when comparing quiz pass rates by gender (35 percent of men vs. 23 percent of women); and company size (34 percent of respondents at companies with 1,000-plus employees vs. 23 percent at businesses with 5 to 200 workers).

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Why the abysmal numbers? One factor is the low priority given to retirement planning. When asked how they allocate their time to personal activities, just 13 percent of workers plan for their “long-term financial future.” Contrast this with the markedly higher rates devoted to:

• • • • Spending time with family and loved ones (52 percent of respondents);
      • Health routines (23 percent);
      • Getting some fun time (22 percent); and
      • Tracking and managing expenses (20 percent)

When they do allocate time to finances, the focus tends to be on the short-term priorities: Among them:

• • • • Ensuring that bills are paid on time (66 percent of respondents);
      • Monitoring savings or checking accounts (53 percent); and
      • Tracking expenses against the budget (35 percent).

In contrast, just 16 percent of Americans regularly monitor their 401(k) accounts. And only 12 percent devote time to preparing for a comfortable retirement.

U.S. workers might be more motivated to tend to their nest egg if they got more financial education in the workplace. As in so many other surveys on 401(k) plans, the Fisher survey finds that’s not the case.

Consider: Only half of the surveyed workers say they’re offered over-the-phone or in-person financial education and counseling. And because they’re not getting the hand-holding they need, large majorities of unhappy workers — 67 percent of those polled express dissatisfaction with their 401(k) service providers — say they experience a range of negative emotions about their plans.

The sentiments, again strongest at small businesses, range from feeling “vulnerable” and “powerless” to “disappointed” and “skeptical.” In the “overwhelmed” category, large majorities say that their:

• • • • 401(k) information sources don’t help them feel in control of their financial future (77 percent of workers at small businesses vs. 70 percent at large businesses); and that
      • financial tools and calculators aren’t particularly useful (75 percent vs. 68 percent, respectively).

Among the “disappointed,” significant percentages of plan participants say that:

• • • • Because they don’t feel supported, they don’t trust their 401(k) plan provider (69 percent vs. 62 percent);
      • They don’t know if they’re getting the best investment options available (36 percent vs. 28 percent); and
      • They’re not very satisfied with their 401(k) provider’s service (87 percent vs. 79 percent)

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Employers that adopt best-of-breed 401(k) plans are better able to recruit and retain talented workers and, thereby, gain a competitive advantage in the marketplace. (Photo: Thinkstock)

Putting the plan on proper footing

Addressing these issues through enhanced online or phone support won’t be enough to reverse employees’ downbeat assessment and lack of confidence that they’re on a “healthy retirement life path.” What’s urgently required, the report emphasizes, is the human element.

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“Americans won’t find the solution that they need in the oversaturated financial digital world that we all live in; instead, they are looking for a personal, hands-on approach,” the report states. The [401k education confidence gap] exists because half of Americans claim that they do not receive on-on-one counseling from their 401(k) provider. When prompted, one out of five wished that they were offered this assistance.”

The lack of in-person advice is “an underserved issue,” yet a high priority for many workers.