Employees have no idea what they’re doing, and do not feel good about it. Robo disruptor Betterment for Business finds employees are neither confident about when they can retire, nor about how their 401(k) plans operate. A new study from the firm, in conjunction with Forrester Consulting, “exposes a broken 401(k) system and widespread confusion concerning retirement readiness, employers’ fiduciary responsibility, fees, and education for employees.”
Key highlights (lowlights?) include:
- Confusion Across the Board: More than half of employees are uncertain that they will retire comfortably when they want to and employers are likewise unsure about how prepared their staff is for retirement.
- Fiduciary Responsibility: 62 percent of employees believe their employers aren’t legally responsible for ensuring that participants receive advice that reflects their best interests. The truth is that employers do bear fiduciary responsibility.
- Fees: Employees don’t understand 401(k) fee structures, with almost 60 percent expecting to pay less than 1 percent in 401(k) plan fees, when fees are often much higher. A surprising 16 percent of employees are unaware as to how much their 401(k) plans actually cost.
- Plan and Investment Education: Traditional approaches to employee education also fall short, according to the research. Annual information sessions typically offered by 401(k) plan managers were effective for only about 20 percent of the employees surveyed.
The solution? Digital, of course.
According to the study, nearly 70 percent of employees agreed that digital tools would increase their likelihood of engaging with their 401(k) plans and that “these tools would make it easier for them to invest for retirement.”
“It’s a real problem in the industry when both employers and employees agree that 401(k) plans are a critical retirement savings tool, yet currently lack proper management,” Cynthia Loh, general manager of Betterment for Business, said in a statement. “It’s more important than ever that employers take a closer look at their plan and ensure that fees are appropriate, and employees have tools to help them feel confident about their retirement savings.”