Administration February 6, 2002
Participant 401(k)-nowledge Comes Up Short
June 14, 2001 (PLANSPONSOR.com) - Only 1% of retirement savers got full marks in an annual quiz on 401(k) plans, which comprised questions ranging from benefits of 401(k) plans to contribution limits and penalties to investment decisions.
Reported by Camilla Klein
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.
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.
- 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).
« SURVEY SAYS: Investment Policy Policies