Participants Acknowledge Investing Ignorance

Most employees participate when offered access to a defined contribution retirement plan, but a strong majority also cite worries and ignorance about tough investing topics.

A new blog post in the LIMRA Industry Trends series argues there is a lot to like about the fact that 401(k) plans have become Americans’ chief retirement savings vehicle, but major challenges remain.

LIMRA points specifically to employer matching contributions, tax breaks, loan availability, and the convenience of automatic paycheck deferrals as the main reasons why 401(k)s work well for workplace retirement savers. The claims are based on a new LIMRA Secure Retirement Institute consumer survey exploring the use of defined contribution (DC) and defined benefit (DB) plans in the workplace—paying special attention to issues such as employee participation, attitudes, risk tolerance and knowledge.

LIMRA says the survey shows 79% participation for eligible private-sector employees offered a DC plan at work—up two percentage points from 2013. Eighty percent of public-sector employees eligible for a DC plan choose to participate, LIMRA says, up from 79% a year earlier. 

The research also finds a continued decline of DB plans offered in the private sector. In 2014, just 16% of employers offered a defined benefit pension. Notably, more than 40% of employees eligible for DC plans at work are also saving for retirement outside of work, LIMRA finds.

While DC participation rates remain high, not all findings from the survey are positive. For example, employees acknowledge they’re not as informed about investing and finances as they would like to be. In the public sector, LIMRA notes only 7% of workplace retirement investors feel very knowledgeable about their investments. Investing prowess is nearly as rare in the private sector, with 12% of investors feeling very confident in their financial knowledge.

LIMRA says many employees recognize that financial services professionals provide a valuable service. More than half of public-sector employees, and about half of private-sector employees, agree or strongly agree that financial advisers provide performance potential beyond what an individual can achieve alone.

This means there is significant opportunity for financial professionals to have conversations with employees who aren’t as aware of money matters as they’d like to be, LIMRA concludes.

LIMRA has also published the survey findings in two infographics, one for the private sector and one for the not-for-profit sector. Sample sizes and demographic breakdowns are also provided.