Small plan 401(k) participants are excluded from investment options that are available to their larger counterparts.
It’s the finding of The Guardian Small Plan 401(k) RetireWell Study 2.0: What’s Working and Not Working for Small Plan Participants. Plan participants at small businesses may not have all of the tools and resources available when compared to large businesses to optimize retirement savings. Small plans generally have access to fewer plan features and services, and fewer investment options, according to the study.
Some of the major differences between small and large plans include the diversity of investment options available, the ability to purchase stock in the company, and access to fixed rate accounts. The study also revealed that small market participants are less knowledgeable and less engaged in their plans than their larger plan counterparts.
This is particularly important, as 401(k)s and other defined contribution plans are by far the largest anticipated source of retirement income for plan participants. The lack of options and services demonstrates an opportunity to enhance overall plan design and investment features made available to small plan participants.
“The RetireWell study reveals a disconnect between small plan participants and their larger plan counterparts that we at Guardian would like to see rectified,” Douglas Dubitsky, vice president at Guardian Retirement Solutions, said in a statement. “Americans rely almost exclusively on their 401(k) accounts for their retirement income, so making access to a broad range of investment options and support for employees of every size company is critical for better retirement outcomes.”
Small and large plan participants share a lack of comprehension regarding terms. Most participants, for example, have heard the term “contribution rate” or “vesting” or have heard about loans from their accounts. Although they have heard of the terms, many do not understand how these terms may affect their own retirement planning.
An unsettling notion given these participants are targeting high rates of return. However, small market participants in particular generally have less access to support and appear to be less knowledgeable and therefore, less engaged in their plans.
“Participants need more education and support from their employers to make better decisions and realize their retirement dreams,” Dubitsky added. “Guardian makes a robust suite of educational tools and resources specifically designed to help small plan participants plan, save, and invest for retirement. The simple conclusion is that the more participants know, the more they will save.”
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.
