Most workers get little or no advice on their 401(k)s

On the Money

Your Money

November 26, 2006|By Gail Marksjarvis | Gail Marksjarvis,Chicago Tribune

Investment manager Louis Holland, of Holland Capital Management, posed the right question on a looming national retirement crisis.

In essence, it was this: Given the fact that 43 percent of Americans are on their way to having less retirement income than they will need, what can business and community leaders do about it?

The answer from a panel of investment experts that Holland moderated recently at The Economic Club of Chicago pointed to an obvious answer: Give employees more education.

Sounds like mom and apple pie.

So here's my take on it as well-intending business leaders throughout the country grapple with the same issue.

Education, of course, is critical. But the key to rescuing tomorrow's retirees from a collective $45 billion annual shortfall by 2030 will depend on the type of education.

Much of what poses as 401(k) education in the workplace now has been a failure - sometimes because employees haven't been motivated to use it, but also because companies have done it on the cheap, or with so many legal constraints, that it's generic, overwhelming and useless.

As business leaders contemplate what they can do, they should realize that their employees have a very different struggle than they do.

It's not simply because employees earn less than corporate executives. It's also because business leaders, with larger incomes and plenty of savings, have access to the most talented financial planners and money managers.

So even if an executive is personally naive about investing, his or her investment guru will make sure there will be plenty of money for greens fees when retirement arrives.

But most quality, experienced financial planners aren't interested in clients who can't walk through the door with at least $250,000 outside a 401(k) plan. Since half of Americans don't even have $36,000 in a 401(k), that says it all.

Academic studies have repeatedly shown that most Americans are befuddled by investing. That's true of corporate managers, professors, professionals and blue-collar workers.

Richard Thaler, a University of Chicago economics professor, tested the skill level of University of California's staff a few years ago. He had each employee examine a list of mutual funds and make choices.

The results were not encouraging. Most of the employees put some money into each fund on the list, and when the funds were replaced with others, they still chose everything. Obviously, they didn't know how to select funds or which quantity to use.

Likewise, Financial Engines, a company that provides 401(k) education and advice, examined employees' investments and found only about 10 percent made appropriate decisions with their blend of mutual funds.

So, in a nutshell, figuring out what to do with a 401(k) is overwhelming for people.

That said, some employers have tried to fix this through Web sites and a few have used one-on-one counseling. Yet even then, the systems have failed. Financial Engines has identified few users for Web-based resources.

And financial advisers, who give one-on-one sessions in workplaces, say employees complain that their bosses won't allow them time away from the job to partake in them.

At first glimpse, that might seem like a pathetic excuse, and it probably is for many. After all, people might be able to seek advice before or after work.

But business leaders truly interested in helping employees should realize many are rushing to day-care centers, or trying to get home in time to serve dinner and help with homework.

gmarksjarvis@tribune.com

You can leave a message for Gail MarksJarvis at 312-222-4264.

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