(b)Mused: Knowledge Gap?

August 2, 2011 (PLANSPONSOR (b)lines) - At a recent family gathering I asked a cousin, who is a professor at a state university along with her husband, if they were invested in a 403(b) plan.

Her answer was “I don’t know what kind of plan it is, but I know it invests with [provider x].” Asked the same question, my best friend, who works for a health care system, said he thinks his employer offers a 401(k) – but he wasn’t sure.  

I tend to forget that “regular people” do not know as much about retirement plans as those of us who work in the industry day in and day out. Though I was impressed that my cousin knew the provider for her plan (and that also let me know it is a 403(b)), I was inclined to think that not knowing the plan type is a bad thing.  

I’m sure the communications they received about the plan told them what type of plan it is, but they likely dismissed that as unimportant. However, they probably paid attention to certain features that they didn’t know were dictated by plan type. For example, 403(b)s allow for 15-years-of-service catch up contributions, whereas 401(k)s do not.  

Reflecting further, it dawned on me that the main concern for most retirement plan participants is probably their balance in the plan. Do they need to know what type of plan they’re in to secure sufficient savings? Of course not. Just as long as they DO save.