In a June 12, 2014, PLANSPONSOR.com article – They write that 401(k) plan
participants still do not understand some of the basics about saving and
investing in their plans as suggested by an recent survey. The survey is authored by MFS Investment Management. Complete article linked here.
According to MFS Investment Management’s (MFS) 2014 DC
Pulse survey, nearly
three-quarters (74%) of participants say having a little bit invested in each
option of a 401(k) plan is the best way to diversify. More than
20% say they have no idea how best to diversify a retirement account.
More than half (52%) of 401(k) participants are not
aware of the tax impact on take-home pay from a contribution of $100, and
nearly half (46%) say they believe the money saved in their retirement plans is
a good source of funding for other financial needs, like paying off debt or
saving for college.
The survey finds participants often contribute just enough to receive the
maximum employer match, and nearly one-quarter (23%) of plan
participants surveyed indicate they believe there is no additional benefit to
contributing more than is necessary to receive the employer matching
contribution. The number jumps to 37% among Generation Y respondents (younger
than age 34).
More than one-third (37%) of
survey respondents say a major drop in the stock market poses the greatest risk
to their retirement savings—not contribution amounts or behaviors. Only 8% base plan contributions
on projected retirement needs and goals, while 46% contribute what they
feel they can currently afford. Only 17% believe the amount of time they are
invested has the greatest favorable impact on their retirement account balance,
and just one in four know early withdrawals may lead to tax penalties.
65% of survey respondents incorrectly believe index funds are safer
than the overall stock market, and nearly
half (49%) believe index
funds have better returns than the stock market.
These statistics are startling, albeit not surprising to many industry practitioners. I believe this makes a clear case for an option within the system engineered to do everything for the participant (not target date funds). Automate an appropriate savings rate, escalate that rate over time, professionally asset allocate and asset select for the participant, adjust as needed and define an endpoint retirement age that will be the target. This system should be the prevailing system, just a thought.
No comments:
Post a Comment