Most Participants Would Rather Leave Retirement Investing to Professionals

By Ted Godbout • August 17, 2018 • 0 Comments

A majority of DC plan participants want the help of an expert in managing retirement assets, but many still stop short of wanting employers to choose their investments for them, new survey results show.

According to J.P. Morgan’s 2018 Defined Contribution Plan Participant Survey, more than half of respondents believe they will be able to retire when they want, up from 30% in 2012, but fewer than 40% of participants are highly confident in their ability to make key investment decisions, and many are not fully engaged in monitoring their 401(k) accounts.

In addition, many participants do have a realistic sense of how much they should be saving, but they don’t necessarily save accordingly. Nearly three-quarters (73%) of respondents think they should be contributing 10% or more to their plan to be on track for a financially secure retirement – in line with the recommendations of many industry experts – but among those, 70% missed their savings target last year. And the 2016 survey results show a similar shortfall.

As to differences in how participants approach investing, 60% of so-called “do it for me” investors want help selecting their investment strategy and prefer to leave most of the ongoing investment decisions to experience investment professionals. By contrast, 40% of so-called “do it yourself” investors prefer a more hands-on approach in selecting and monitoring their plan’s investment options and making adjustments.

The authors point to several findings in the survey that suggest a potential “lack of time, talent or interest” could be why many participants are not fully engaged in monitoring and managing their investments:

  • A quarter of participants admit that they either don’t know when they last checked or have never checked to see if their savings rate will be sufficient to meet their retirement goals.

  • Nearly one-third have never made a new investment selection.

  • Only half had reviewed their 401(k) offerings in the six months prior to being surveyed, including looking at their current investment performance.

  • Only 40% had considered making changes to their 401(k) accounts during that same six months.

Perhaps not surprisingly, the survey results show that a growing number of “do it yourself” investors appear to be moving toward a preference of “do it for me.” Of the “do it yourselfers,” 41% now agree with the following statement (up from 29% in 2016): “If I could push an easy button and completely hand over my retirement planning and investing to a financial professional, and not have to think about it at all, I would.” By comparison, 75% of “do it for me” investors agree with the statement, up from 73% in 2016.

Turning Resolutions into Reality

So what can be done to enhance 401(k) programs and improve participant outcomes? The authors suggest that traditional approaches alone are not enough to motivate employees to save at sufficient levels, and that automatic plan features as well as streamlined investment decisions can help improve saving behavior and “put inertia to work for, not against, participants.”

The good news, according to the authors, is that the survey results indicate automatic enrollment and automatic contribution escalation “appear to strike the right balance” between the encouragement and direction participants need and the autonomy they want.

“Despite some plan sponsors’ reluctance to implement automatic features, most participants find automatic enrollment and automatic contribution escalation attractive (82% and 80%, respectively), with 78% supportive of the combination,” the report explains. Moreover, it shows that both “do it for me” and “do it yourself” investors supportive of these features at 81% and 75%, respectively.

What’s more, among survey respondents who were auto-enrolled, the vast majority (95%) indicated that they are satisfied, including 96% of “do it for me” investors and 94% of “do it yourselfers.” The findings also show that few respondents opted out (1%) and a third admitted that, had they not been auto-enrolled, they probably would not have participated in the plan.

As for getting participants to review and potentially improve their asset allocation, the report emphasizes that strategies designed to streamline investment decision-making, such as target date funds and re-enrollment, can be effective, without taking complete control of investment decision-making out of participants’ hands.

In fact, despite the large majority of participants who find TDFs somewhat or very appealing, when TDFs are simply added to investment lineups, only about 1% to 4% of plan assets end up in these strategies. But when plan sponsors conduct a re-enrollment, the TDF share of plan assets is a much larger 49% to 97%, according to the survey results. “This is another illustration of inertia at work. Simply given the option to invest in TDFs, most participants do nothing, but when defaulted into these strategies, few opt out,” the authors note.

J.P. Morgan partnered with Mathew Greenwald & Associates to conduct the online survey of 1,295 DC plan participants from Jan. 5-15, 2018. To qualify for the study, each respondent had to be employed full-time at a for-profit organization with at least 50 employees, be at least 18 years old and have contributed to a 401(k) plan in the past 12 months.