Despite record-high 401(k) plan balances, few workers are actively managing their portfolios, a new survey from Aon Hewitt finds.
According to the company’s analysis of 138 defined contribution plans representing 3.5 million eligible workers, participation in 401(k) plans reached 79 percent at the end of 2014, the highest level since it began tracking the data in 2002.
The average plan balance also hit an all-time high of $100,320, up notably from $91,060 at the end of 2013. Additionally, Aon Hewitt found that nearly one quarter of workers (24 percent) increased their contribution rate in 2014.
However, few workers are proactive when it comes to managing their accounts. Only 15 percent of workers rebalanced their portfolio in 2014—making it one of the lowest trading years on record. Even when eliminating the participants who are fully invested in target-date funds or other premixed portfolio options—which do not require rebalancing—only 19 percent of workers rebalanced their portfolio. Aon Hewitt also found that on average, workers were invested in just 3.6 different funds, down from 3.7 in 2013 and 3.9 funds in 2012.
“In the last decade, employers have made strides in helping workers prepare for retirement by adding plan features that make saving and investing easier,” explained Rob Austin, director of Retirement Research at Aon Hewitt. “At the same time, employees continue to take a passive role in managing their 401(k) plans. Employers can nudge workers in the right direction by providing more robust products, tools and resources.”
3 Actions for Employers to Help Workers Make the Most of their DC Investments
- Offer access to help tools. A 2014 analysis from Aon Hewitt and Financial Engines showed that workers who took advantage of help tools, in the form of managed accounts, online advice and target-date funds, fare better than those who go it alone. Providing these resources allows workers the benefit of professional management, in order to optimize their returns.
- Simplify the fund line-up. Offering multi-manager, white-label or objective-based funds can make the investment process less complex for participants while providing them with better diversification. Additionally, these institutional funds may reduce fees for workers and potentially provide better returns, ultimately improving their long-term savings.
- Consider lifetime income options. Defined contribution plans have become the primary retirement vehicle for millions of Americans, but few of these plans provide a way for workers to manage their money during retirement. Lifetime income options can help ensure that retirees do not outlive their retirement savings and may remove the need for participants to actively rebalance their portfolios.
“Encouraging lifetime income is important to many employers, though it’s primarily leading-edge companies that are implementing these options for their workers,” explained Austin. “We expect to see more companies move in this direction as they gain a better understanding around new laws on longevity annuities and as the price, availability and quality of these types of products continue to improve.”
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With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
