Sponsors of 401(k) plans should be more worried about how much money participants are socking away than where they choose to invest that money, warns Sylvester Schieber, director of research at Watson Wyatt Worldwide Inc., Washington.
His new study dispels the notion that American workers play safe with their retirement dollars.
True, employees in their 50s and 60s still have most of their retirement dollars in guaranteed investment contracts and bonds, Mr. Schieber found. But his study of more than 36,000 participants in 401(k)-type retirement plans found workers in their 20s and 30s invested more than half their retirement money in stocks. Workers in their 50s tucked away only about 30% of their retirement dollars in stocks, and those in their 60s, 13%.
In general, workers under 40 tend invest about 60% in stocks and 40% in bonds.
What's more, lower-paid employees take fewer chances than higher-paid employees. Those earning under $25,000 had almost two-thirds of their retirement plan assets in bond funds, while those earning between $75,000 and $100,000 had only one-fourth of their retirement money in such conservative investments.
Mr. Schieber reasons that lower-paid workers may be more conservative in case they need to tap retirement savings for emergencies.
"All the whining about defined contribution plans may be misplaced," Mr. Schieber says. "There are other issues that are at least as important such as what's happening to those who aren't contributing, or are contributing 3%-4% (of pay) when they could be investing 8%-9%," Mr. Schieber said.
As a result, Mr. Schieber suggests employers spend more of their time and energy coaxing workers into putting their money away for their golden years, rather than worrying about where employees are putting away that money.
And he said participants in employee-directed plans can't be expected to take the same kinds of risks that their employers take in employer-directed plans.