Think 401(k) participants understand the plans in which they’re enrolled? Think again.
More than 70 percent of respondents failed a 401(k) financial education workplace quiz, missing at least three of the nine basic questions.
The quiz, administered by RIA bigwig Ken Fisher and Fisher Investments 401(k) Solutions finds a “startling” knowledge gap among Americans when it comes to 401(k) plans.
The results found that most Americans understand topics like 401(k) matching, but they struggled on the quiz when asked about additional topics that are critical to making 401(k) decisions.
For example, only 24 percent of respondents could define a mutual fund and only 43 percent knew the percentage of their salary they should save for a comfortable retirement.
“These results point to a larger issue that I see regularly with clients,” Nathan Fisher, managing director and head of Fisher Investments 401(k) Solutions, said in a statement. “People tend to understand the big picture value of 401(k) plans, but when you start to get more specific they quickly struggle, which is a huge problem.”
This sentiment was reflected in the data: while four out of five Americans say they prefer to work for companies that offer a plan, a majority (66 percent) are not confident in choosing 401(k) investment options.
Moreover, one in four Americans claim they were not involved or can’t recall how they picked their 401(k) assets, and over 40 percent are not confident that they will reach their retirement goals.
Employees at small businesses (those with between five and 200 employees) tend to be even less confident about their 401(k). This group had a larger fail rate in the quiz, with nearly four out of five respondents failing. This group was also more likely to say that their provider “does not make them feel in control of their financial future and that they wish their 401(k) plan was easier to understand.”
“Small businesses owners want to provide the best possible benefits to their employees, but they often lack the time or resources to assess benefits like 401(k) plans,” Fisher concluded. “However, it doesn’t have to be daunting. This survey can provide a roadmap for small business owners to evaluate and select plans that will help address the gaps.”
Additional findings from the survey include:
- Americans don’t trust their 401(k) providers:Trust is an important aspect of retirement planning – both trusting your employer and your advisers. Unfortunately, the survey found one out of four Americans does not trust their provider. Interestingly, a third of respondents said that they look to friends or family members for information and guidance on 401(k)s. This number was much higher among millennials, with 41 percent saying they look to friends and family members for information.
- Women are less confident when it comes to 401(k)s: Though academic and industry research shows women tend to make more thoughtful investment decisions, when it comes to monitoring the progress of accounts, only 1 in 5 women make it a priority. Moreover, women were less likely to say they know how to pick investments in their 401(k)s.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of 401(k) Specialist and 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. Experienced financial services content executive specializing in creative new media delivery. He joined the American Retirement Association in 2023 as Chief Content Officer, overseeing communications for the organization, as well as its sister organizations.
