401(k) Participant Guidance: Half Empty and Half Full

Aon (proud sponsors of my Manchester United) and Financial Engines released a report on 401(k) participants and the use of financial help in their plan.  The study found that workers who used financial help between 2006 and 2010 experienced annual returns nearly 3 percent higher (292 basis points, net of fees) than those individuals managing their 401(k) accounts on their own. They also found that the Sun will rise tomorrow and 3 out of 4 401(k) plan participants make 75% of the participants.

Seriously, it should be no surprise that plan participants that received professional investment help (defined as either using target date funds, using managed accounts, or receiving online advice) would do better than participants that didn’t. While some would scoff that the difference is only 3%, that 3% is annual and 3% annually over 20 to 40 years is quite a bit of shekels and dollars

So while it is certainly a positive development that those who get help do better, it should be noted that only 30% of plan participants use the help offered in their plan. So 70% of plan participants go it alone.

In addition, the survey was only using data in eight large employer-sponsored defined contribution plans, representing more than 400,000 individual participants with $25 billion in plan assets. Since these were larger plans, it was stand to reason that these plans offered some sort of financial help. However, there are too many medium sized and small plans that don’t offer any financial help or even have a financial advisor on the plan. So while the survey proves what most of us in the retirement plan industry always believe, we have a long way to go in delivering financial help and education to 401(k) participants who really need it.