Responses from a recent MSEC survey show the large majority of employers – 98 percent – provide some kind of retirement benefits for employees, and most provide some sort of match to their employees. Because employers are making this significant investment, a good question to ask is if the dollars are being maximized.
A recent survey answered this question, and unfortunately, the answer was “not necessarily.” Financial Engines and Aon Hewitt conducted a study called Help in Defined Contribution Plans: 2006 through 2012. The results showed educating employees about how to best invest proves more profitable. Typically, 401(k) funds provide guidance to employees about investing in one of three ways: online or through managed accounts or target-date funds. Regardless of the type of guide chosen, research shows employees must understand how the guides should be used.
For example, employees who put part of their money in target-date funds, and invested the rest as they saw fit, earned a rate of return 3.32 percent lower on average than employees who invested all amounts in target date funds. This is because investments outside the target-date fund can undermine those in the fund.
While some employers automatically place funds in target-date funds for their employees, employees tend to withdraw amounts over time, creating a lower rate of return. Financial Engines and Aon felt this tendency, along with other poor investment strategies, indicated how critical it is for employers to train employees about investing.
Contact MSEC with your questions about retirement plans and financial planning for employees. We can provide you with insight and advice to move forward.
MSEC Survey Results for Retirement Vehicles