Participant 401(k)-nowledge Comes Up Short

JPMorgan/American Century Retirement Plan Services, which conducted telephone interviews with 750 retirement savers, found that survey respondents continued to struggle with questions on contribution limits and benefits of 401(k) plans.

• over 33% believed there is no annual maximum contribution limit,
• while another 45% of respondents didn’t know the maximum annual contribution limit, and
• only 18% identified the correct answer.

Benefits? What Benefits?

In addition, 60% of the sample could not identify the following as benefits of a 401(k) plan:

• contributions lower taxable income,
• retirement savings grow tax deferred, and
• an employer match is offered by many companies.

However, 40% did know that penalty-free withdrawals are not always allowed to cover education expenses.

Good Understanding

On the bright side, respondents demonstrated a good general understanding of their rights as employees.

• a little over 60% knew that plan participants are responsible for making their own investment decisions, although 17% thought it was the plan administrator, and 12% opted for the employer.
• a third understood that an employer service charge paid is not a consequence of taking an early cash distribution from a 401(k) plan,
• three-quarters knew that if their company went bankrupt, employees’ 401(k) plan assets would be safe,
• likewise, 77% knew that their work supervisor could not legally access their employee 401(k) information.

In addition,

• almost two-thirds of participants knew that the amount of investment selections a 401(k) plan can offer is unlimited.
• close to three-quarters of those quizzed, knew they could make contribution to both a 401(k) plan and an IRA in the same year, up from 65% of respondents in last year’s survey.
• less than a third correctly answered that “investing too conservatively” is typically one of the biggest mistakes made by 401(k) participants (14% said it was investing too aggressively).