A study backed by Forrester research and commissioned by Betterment for Business found employees in the study didn’t understand how fees for their 401(k) plans worked, were unlikely to get much value out of employer-provided education sessions, and mistrusted their plan providers—which they think are primarily responsible for decision-making about the plan.
Nearly 70% of employees agreed that online platforms that provide financial advice, help them see all their wealth in one place, and are transparent with fees and investments will better help them invest for retirement. Increasing employee and employer access to information and empowering oversight can help reduce risk for employers, the research paper says.
One significant area of employee confusion around 401(k) plans is the role and responsibility of the employer versus plan provider in managing a company’s offering. The study found that nearly half of employees believe their employers are not very or not at all involved in selecting 401(k) investments. In addition, 62% said they believe their employer holds no legal responsibility for ensuring that the financial advice provided to the employee around 401(k) investments reflects their best interests. Fifty-six percent of eligible participants said they were skeptical that their provider would have their best interests at heart.
Most employers interviewed did not have visibility into what contributions or fund selections their employees were making on their accounts. Because overall retirement readiness involves considerations outside 401(k) participation—such as IRAs, spousal income, and other investments—employers said they had no way to effectively track all of these variables to help ensure their staff were prepared for retirement.
The most common way employers seek to change employee behaviors around retirement savings is through employee education sessions. These sessions are typically run by the provider or by their third-party advisers, either annually around enrollment time or quarterly. Two of the employers interviewed offer additional one-to-one guidance with an adviser representative for an additional fee, payable by the employee.
Overall, the employers had mixed reviews of the impact of these sessions. While many of the employers we spoke with said they had every indication the sessions were a success, others told us they were confused when the sessions didn’t have a greater impact on employee participation. NEXT: Employees want more digital tools