Part Two: Investments
THREE KEY TAKEAWAYS
- Most participants want help selecting investments, and a growing number expect employers to provide it.
- The vast majority like the idea of TDFs but are not investing in them.
- Automatic enrollment and reenrollment programs remain very popular.
1. MOST PARTICIPANTS WANT HELP SELECTING INVESTMENTS, AND A GROWING NUMBER EXPECT EMPLOYERS TO PROVIDE IT
A 53% majority of surveyed participants want help selecting their investment strategies and prefer to leave most ongoing investment decisions to experienced professionals (EXHIBIT 4). Interestingly, the number of participants who believe that their employers have an obligation to help them pick the right plan investments has steadily climbed over the years, up 41% from 2016.
A majority want help with investment choices, and more want it from their employers
EXHIBIT 4A: HOW RESPONDENTS PREFER TO MAKE 401(K) PLAN INVESTMENT DECISIONS
EXHIBIT 4B: BELIEVE THEIR EMPLOYERS HAVE AN OBLIGATION TO HELP THEM PICK THE RIGHT PLAN INVESTMENTS — RESPONDENTS WHO SOMEWHAT/STRONGLY AGREE
2. THE VAST MAJORITY LIKE THE IDEA OF TDFs BUT ARE NOT INVESTING IN THEM
Almost nine out of 10 of this year’s respondents indicate that they find it appealing to have access to a target date fund (TDF) in their plans, similar to our prior survey findings (EXHIBIT 5). Even within the 47% of participants who prefer to make their own investment decisions, 86% like the idea. However, less than three out of 10 participants are invested in a TDF. Of note, investing in a TDF also appears to offer a greater sense of security: Our survey results showed that participants invested in TDFs are more confident that their retirement savings will last a lifetime (70% vs. 55%).
Nearly 90% want access to a TDF, but only 28% are invested in one
EXHIBIT 5A: FIND ACCESS TO A TDF APPEALING
EXHIBIT 5B: CURRENTLY INVESTED IN A TDF
In related research, our recent asset allocation study of 2 million participants3 showed that older participants tend to have far less invested in TDFs than their younger counterparts do. This is likely due to the fact that broad usage of qualified default investment alternatives (QDIAs) and most automatic plan features took place after the Pension Protection Act of 2006, and many older participants may not have benefited from these proactive plan efforts. Unfortunately, this research also found that older “do-it-yourself” (DIY) investors often seem to take a barbell approach when it comes to investment risk, taking on either too much or too little. Indeed, almost 20% of DIY participants between the ages of 55 and 70 had invested 80%–100% of their balances in equities, putting their retirement assets at significant risk during some of the most sensitive times in the retirement savings journey.
3. AUTOMATIC ENROLLMENT AND REENROLLMENT PROGRAMS REMAIN VERY POPULAR
Participants report high satisfaction rates when it comes to automatic enrollment and reenrollment. Of those who were automatically enrolled into their plan and defaulted into a TDF, a full 100% are satisfied with the action. Similarly, nearly nine out of 10 either favor or are neutral about the idea of a plan reenrollment, where participants are notified that their existing assets and future contributions will be moved into the plan’s QDIA—often a TDF—on a certain date unless they opt out and make their own investment elections. The number favoring this type of action jumped by 26% this year compared with 2016.
Further, nearly three out of 10 respondents report being part of a plan reenrollment with their current employer, a 73% increase since 2016 (EXHIBIT 6). Of those, 81% had their assets moved into a TDF, with a 57% majority purposely choosing the shift. Only a relatively small 19% actively opted out of the TDF for another investment election, a 30% drop from 2016.
Almost a third have been part of a reenrollment, and 81% of those moved assets to the plan’s TDF
EXHIBIT 6A: HAVE BEEN ASKED AT SOME POINT TO REAFFIRM PLAN INVESTMENTS OR BE MOVED INTO A TDF BY THEIR CURRENT EMPLOYER
EXHIBIT 6B: ACTION TAKEN
Many participants want help in selecting and monitoring their investments and are happy to have plans “do it for them” through automatic defaults into TDFs. With these findings in mind, plan sponsors and financial professionals should feel confident to incorporate proactive investment features that help increase the odds that participants will be able to meet their retirement funding goals. They should consider:
- Using automatic enrollment to get more employees investing in the plan.
- Helping to ensure that employees’ retirement assets are put to work in a prudent manner through TDFs.
- A broader plan reenrollment to help make sure longer-tenured employees benefit. (Automatic enrollment programs tend to skew toward new, often younger employees.)
The good news is that participants appear to be highly receptive to these efforts. TDFs, automatic enrollment and reenrollment have all proven to be both popular and extremely effective tools to help plan sponsors place as many participants as possible on a safer retirement savings path.