401(k) IQ in the Workplace Survey Report

Transcription

1 401(k) IQ in the Workplace Survey Report 2017 Fisher Investments. Investing in securities involves the risk of loss. Intended for use by employers considering or sponsoring retirement plans; not for personal use by plan participants.

2 Overview Employees feel overwhelmed by their 401(k) and aren t confident about reaching their retirement goals 401(k) plans are offered by employers for any number of reasons: to help their employees get retirement ready, to save for their own retirement, to attract and retain top talent and often all of the above. But are employers getting the benefits they expected by offering a 401(k)? We set out to get answers to this question, along with others: How well do employees understand their 401(k) plan? Do they have confidence in their retirement-readiness? Do they know how to choose their 401(k) investments? Do they value the benefit their employer offers? And above all, what do those answers mean to employers? We conducted a financial wellness survey that included the 401(k) IQ in the Workplace quiz to explore 401(k) plan knowledge. We surveyed more than 1,000 employees with evenly mixed demographics and company sizes and the results were fairly consistent, regardless of age, company size, or other discernable factors.* In our survey, we found that employees are overwhelmed by the management of their 401(k) plan and don t feel in control of reaching their retirement goals. They often lack the expertise to make investment selections and wish they had more 401(k) guidance and support. Therefore, employees are skeptical of the value a 401(k) offers them. What s the impact if employees don t understand or value their 401(k)? Employee participation rates and deferral rates can be low which might cause regulatory issues with top-heavy plans, and therefore a higher risk for an audit Employees don t view the benefit as a valuable part of their compensation package, making the 401(k) plan ineffective as a retention tool HR managers take on the brunt of educating employees on financial and investment topics, leaving less time for their other responsibilities Business owners and other highly-compensated employees can t save as much as they want because there aren t enough employees participating In this report, we ll explore specific survey questions we asked employees regarding investment decisions, retirement goal confidence and 401(k) service provider trust. In addition, we ll provide full results to the nine-question IQ quiz at the end. *Research methodology: KRC Research surveyed 1,013 American small and midsized business employees whose companies offer a 401(k) plan. Respondents were selected to represent an even mix of demographics and company sizes. The research was collected via a 10 minute online survey from October 7 to 11, 2016.

3 The 401(k) Education Gap Employees tend to understand the big picture when it comes to 401(k) plans, but quickly struggle with specifics. 71% of Employees Fail 401(k) IQ Quiz Nearly three-out-of-four respondents failed our 401(k) knowledge quiz which included questions like: At what age can you begin to withdraw money from your retirement account without incurring penalties? Can you borrow from your 401(k) plan? True or false, the money invested in a traditional 401(k) plan reduces your taxable income. We found that most employees didn t pass this knowledge quiz regardless of the size of the company they worked at. In the survey, employees also shared that they don t prioritize 401(k) education or retirement planning in general. 71% 29% Pass Fail 401(k) Fix: We believe the high failure rate comes down to a lack of 401(k) education what we call the 401(k) Education Gap. Oftentimes, employees aren t offered ongoing in-person education and support. Many 401(k) providers direct people to their website for tools, but the self-service model backfires if individuals don t prioritize self-education. This places the burden on the business owner or HR manager, who has enough work to do already. Inperson education is still one of the best ways to share information and engage employees in their 401(k) plan, so ask your service provider for more on-site educational support.

4 Investment Decisions Half of respondents lack confidence in their ability to choose 401(k) plan investments, and two-thirds don t know how to choose investments to reach their retirement goals. The survey revealed that not only do employees lack confidence in selecting their investments, they also aren t sure whether they ll reach their retirement goals. In addition, employees reported that they don t have confidence in the financial resources available to them. Overall, many employees don t have the information they need and don t know where to turn to for help, so they end up either not saving or not saving enough for retirement. Half Aren t Confident in their Investment Selections 49% 51% Not Confident Confident 401(k) Fix: Employers are often put in the difficult position of having employees ask them for investment advice. You may not have the time or expertise to answer those questions. Seeing your employees get the benefits you intended by offering a 401(k) plan is a difficult challenge for most businesses to address. Whether your employees are seasoned investors or enrolling in a retirement plan for the first time, working with a 401(k) service provider that has multiple investing options will help your employees find the right path for their retirement planning. Not all of your employees will want to invest in the same way that s why it s important to offer options for investors with different levels of investment knowledge and interest. That way, employees get to choose how hands-on they want to be.

5 401(k) Service Provider Trust and Satisfaction Two-thirds of employees are not very satisfied with the service delivered by their 401(k) provider Two-out-of-three employees at all companies were not very satisfied with their 401(k) service, and worse, three-out-of-four employees at businesses with five to 200 employees weren t satisfied with their 401(k) service provider. This isn t surprising, as we also found that only 29% of employees are confident in planning with the 401(k) sources they have. 67% are Dissatisfied with their 401(k) Service Provider 80% 60% 40% 20% 33% 67% I prefer 401(k) management support from my employer True False I'm not sure 14% 8% 77% 401(k) Fix: 0% When asked, nearly 80% of respondents said they would prefer working for an employer that proactively helps you get on track and stay on track for a comfortable retirement compared to employers who simply offer a 401(k) plan. Satisified Not Satisfied Oftentimes, 401(k) service providers aren t available to participants once the plan is set up and this is especially true for small businesses. The survey results make clear note of that, as 401(k) service providers rank lowest on provides one-on-one counsel. It s especially important today to provide in-person, one-on-one support for employees as they set their retirement goals. Employees want to know if their 401(k) savings are on track, how much they should be saving, and what type of investments they should be using.

6 Bridging the Gap with Trusted Partners 49% of employees are not confident in their ability to choose 401(k) plan investments 67% of employees are not satisfied with their 401(k) provider 71% of employees failed the 401(k) IQ in the Workplace quiz A 401(k) plan can be one of the most compelling benefits for attracting and retaining valued staff but only if your employees actually take advantage of it. Partner with a 401(k) service provider who will help put your 401(k) plan above your competition s, and help put your employees in position to build toward their future. About Fisher Investments 401(k) Solutions Fisher Investments 401(k) Solutions is dedicated to helping small and mid-size businesses with their plans while helping their employees reach their retirement goals. We seek to offer comprehensive 401(k) plan services that are designed to help employees optimize their retirement savings while easing the company s risk and administrative burden. One-on-one employee meetings with all eligible employees to support their unique, individual retirement goals Ongoing education on financial topics such as budgeting, investing, debt management Personalized service and support with dedicated retirement advisers who aren t sales people Investment options for different types of investors Call us at or visit our website at 401(k) Quiz Results Next Page q

7 401(k) IQ Workplace Quiz Questions Answers 1 Do you know what a 401(k) match is? Correct Answer: Yes 88% of respondents correct 2 3 Do you know what percentage of your salary you need to invest in your 401(k) to successfully save enough for your retirement? As defined by the IRS, at what age can you withdraw money from your 401(k) without a penalty? Correct Answer: Yes 43% of respondents correct Correct Answer: Age % of respondents correct 4 True or False: In most cases, people can combine a 401(k) plan from their previous employer to a 401(k) plan with their current employer. Correct Answer: True 73% of respondents correct True or False: People that take money from their 401(k) before retirement age will face income tax and penalties on the withdrawal amount. True or False: In most cases, people cannot borrow from their 401(k). True or False: In most cases, once a 401(k) investment plan is set up, people are not allowed to change their investment options. Correct Answer: True 87% of respondents correct Correct Answer: False 60% of respondents correct Correct Answer: False 76% of respondents correct 8 True or False: The money I invest in a traditional 401(k) plan reduces my taxable income. Correct Answer: True 67% of respondents correct 9 What statement is false about a mutual fund? a.) A mutual fund is an investment vehicle that is made up of a pool of funds collected from many investors. b.) The decisions to buy and sell securities in a mutual fund are made by one or more portfolio managers. c.) A mutual fund is limited to no more than 10 different financial securities in the portfolio. Correct Answer: C 24% of respondents correct