Asked to cite the most common employee investment mistakes, plan sponsor respondents in Hewitt’s 2001 Trends and Experience in 401(k) plans study identified “failure to participate early enough”, followed by “not contributing enough,” and “not diversifying enough”.
That sense is validated in the findings of the 2000 Hewitt Universe Benchmarks study, which found that less than half (45.8%) of employees with less than two years of tenure participate in these plans, compared with the average participation rate of 74%.
According to the new survey, 45% of plan sponsors list increasing plan participation as the most important goal in their education efforts. As for steps taken to address this shorfall,
- automatic enrollment has been implemented by 14% of plans, double the 7% reported in 1999,
- some 88% provide their participants with online access to 401(k) accounts, up from 55% in 1999, and
- nearly all (93%), match before-tax employee contributions, with 72% providing a fixed match
Nearly a quarter (24%) of plan sponsor respondents said that “not contributing enough” was the second most common employee mistake.
The 2000 study showed that active 401(k) participants contribute at an average rate of 7.7% of pay, which is greater than the common employer match threshold of 6% of pay, however lower salary employees and younger employees contribute at a much lower rate than average, according to Hewitt.
The 2000 study showed that irrespective of age, salary or tenure, nearly half (46%) of participants invest in only one or two funds ? though the average number held is 3.3. Furthermore, 75% of participants’ assets are invested in just three key asset classes, namely:
- employer stock,
- large US equity, and
- stable value investments
In efforts to encourage diversification, the 2001 trends survey showed that:
- some 12% of plan sponsors offer self-directed brokerage accounts, compared to 7% in 1999,
- over a third of employers offer lifestyle funds, with the average number of lifestyle funds at four, and
- almost 80% providing online educational resources, up from 62% in 1999
The 2001 Trends and Experience in 401(k) Plans study surveyed over 400 US employers. The 2000 Hewitt Universe Benchmarks study examined the investment behavior of over 730,000 eligible employees and 500,000 active participants.
– Camilla Klein firstname.lastname@example.org