Updated Oct. 19
Just because participants in 401(k) plans have investment information doesn't mean they'll read it, a J.P. Morgan Retirement Plan Services survey showed.
Two-thirds of 401(k) participants don't read investment information provided by their plan executives, according to the survey — a surprising finding given the calls by some legislators for defined contribution plan executives and money managers to provide participants with more fee disclosure and financial information, said Diane Gallagher, vice president and head of participant communications and education at Kansas City, Mo.-based J.P. Morgan.
“There's so much scrutiny around disclosure, and the idea that more is better,” said Ms. Gallagher. “But this validates what we've long believed — that participants are overwhelmed with the information they're receiving already. Participants want simplicity.”
Similarly, a survey conducted in February by I-Pension LLC, a Newton, Mass., registered investment adviser, found 27% of participants admitted to not even opening their fourth-quarter 2008 statements. Of those who did, one-third spent less than a minute reading it and 72% spent less than three minutes.
Despite that, the J.P. Morgan survey discovered that three out of four participants have confidence in their own financial decision-making — twice the level of confidence they have in their employer and five times that of trust in government.
Robyn Credico, national director of defined contribution consulting at Watson Wyatt Worldwide, said her experiences jibe with the findings. “Most monthly and quarterly communication efforts by DC vendors and plan sponsors are not effective at all. And the government wants to give participants more information to read, which will mean more wasted paper and more money pulled out of participant accounts to pay for it. It's not going to do much.”
Despite not reading the investment information, 401(k) participants still seem to understand the importance of saving for retirement. The J.P. Morgan survey found that saving for retirement is the No. 1 financial priority for 27% of participants, second only to paying bills (32%). Sixteen percent said paying off credit cards was the top priority, while 15% said paying off a mortgage was most important.
“There's definitely been a resetting of priorities,” said Ms. Gallagher. “For many people, 2008 was the first time they saw losses in their retirement accounts, so there is an urgency to regain what was lost.”
As a result, many participants have changed their monthly spending, the survey found. For example, 56% of those surveyed said they have stopped dining out as frequently, while 48% said they have held off on making major purchases such as cars and appliance. Forty-four percent said they used savings coupons more often, and 19% said they have bought groceries in bulk.
Ms. Gallagher said the top goal of DC plan and investment management executives should be to make sure plan participants are “retirement ready.” According to the survey, only 9% of those surveyed were strongly confident they will not outlive their retirement savings, and just 16% were “very” or “extremely” confident they'll be able to reach their financial goals for retirement.
“We have a confidence crisis among participants,” said Ms. Gallagher. “As an industry we have to help them get ready and feel confident by providing proper savings projections, making the decision process as easy as possible, and by making sure they are invested appropriately.”
Despite last year's market upheaval, 77% of participants surveyed did not make any changes to their 401(k) contributions in the past 12 months, the survey found. The findings correspond with a survey released last month by Profit Sharing/401(k) Council of America, Chicago, showing that the participation rate at the average DC plan rose to 82.7% in 2008, from 81.9% in 2007, and the average deferral rate was 5.5% in 2008, just slightly below the 5.6% rate in 2007.
Ms. Gallagher said participants' decision to keep contributing through the market swoon was partly due to automatic enrollment and automatic escalation features that have been adopted by many DC plans.
The J.P. Morgan survey of more than 1,000 401(k) participants was conducted April 24-May 1.