Earn Rewards: Sign up now and earn a special reward after your first deposit. See offer details

<title>Dismiss</title>

Calling All Employers: Are You Setting Your Employees Up for Retirement Success?

New research finds that employees are neither confident about when they can retire, nor about how their 401(k) plans operate. Employers can address this by choosing new digital advice tools and robust, low-cost 401(k) plans to help their employees better prepare for retirement.

Articles by Betterment Editors

By the Editorial Staff
Betterment Resource Center  |  Published: September 8, 2016

A new study shows that almost 60% of employees are unclear about how their 401(k) plans are priced, and an even higher percentage don’t understand how they operate.

Research from the study also confirmed more than half of employees are less than confident that they’ll be able to retire when they want.

Additional findings show that employers aren’t aware of how prepared their employees are for retirement, and that current education efforts are effective for only 20% of 401(k) plan participants.

Now, new digital tools can help by offering employees personalized advice they can trust, at transparent prices, and on a user-friendly platform that syncs with all of their outside accounts.

The 401(k) system as we know it is broken.

Created almost 40 years ago as a tool to help people save for retirement, 401(k) plans today have left both employers and employees unclear as to how the plans operate or enable retirement preparedness altogether.

This and more findings on the state of the 401(k) industry appear in a new commissioned study conducted by Forrester Consulting on behalf of Betterment, “Digital Tools Help Address Issues for 401(k) Plans.”

Confusion Across the Board

The study found that despite investing in a 401(k), more than half of employees (plan participants) are uncertain that they will retire comfortably when they want to, and employers (plan sponsors) are likewise unsure about how prepared their staff is for retirement. Additional findings concerned fiduciary responsibility, plan pricing, and the benefits of adequate 401(k) plan education.

Fiduciary Responsibility

Forrester’s research concluded that 62% of employees believe their employers aren’t legally responsible for ensuring that a 401(k) plan’s investment advice reflect their best interests. In fact, the employer does have fiduciary responsibility for the plan.

The study also found that employers have limited visibility into whether their employees are on track to retire when they want, and comfortably. For example, an employer’s traditional quarterly review process doesn’t provide insights into a 401(k) plan’s effectiveness, or the level of their employees’ retirement readiness.

Fees

The research also found that employees don’t understand 401(k) fee structures, with almost 60% expecting to pay less than 1% in 401(k) plan fees, when fees are in fact often much higher. A surprising 16% of employees are unaware as to how much their 401(k) plans actually cost.

Meanwhile, many employers only understand the fees and expenses embedded in the plans at a high level, but misunderstand the details.

Plan and Investment Education

Traditional approaches to employee education also fall short, according to the research. Annual information sessions typically offered by 401(k) plan managers were effective for only about 20% of the employees surveyed.

forrester-infographic-resource-center-800

Digital Solutions Offer Clarity

Both employers and employees agree that 401(k) plans are a critical retirement savings tool, yet currently the plans lack proper stewardship.

What can employers do to fix this?

For starters, employers can avoid plans that lack plan education, charge employees high fees (through layers of middlemen, plan managers, and add-on products), aren’t easily accessible or manageable, and may not be operating in their employees’ best interest.

Instead, employers can choose to offer their employees a better 401(k) plan: a low-cost plan that is served by an investment management and advice fiduciary, operates at scale, and offers a user-friendly digital platform for employees. Betterment’s 401(k) offers employees personalized advice they can trust, at transparent prices, and on a user-friendly platform that also syncs with outside accounts. Betterment also serves as a 3(38) fiduciary under ERISA.

To download the full study and recommendations for plan sponsors, visit bettermentforbusiness.com/forrester.

In this study, Forrester conducted an online survey of 305 full-time employees in the US whose companies offer a 401(k) plan, in order to understand rates of plan participation, as well as the drivers and inhibitors of managing these plans. In addition, Forrester interviewed seven benefits decision-makers or influencers at US companies to evaluate how they manage their company plans. Questions provided to the participants asked about 401(k) participation, attitudes, and management practices. Respondents were offered a nominal financial incentive as a thank you for time spent on the survey. The study began in June 2016 and was completed in September 2016.

Recommended Content

View All Resources

Jon Stein on “How I Built This:” Reflecting On Our Story

Jon Stein joins NPR’s Guy Raz for an episode of “How I Built This” to look back at how Betterment started, what mistakes were made, and how they turned into learnings for the robo-advisor we are today.

Is Betterment Worth It? Estimating the Added Value of a Robo-Advisor

Based on our estimation, using Betterment’s retirement recommendations could earn you 38.8% more after-tax money in retirement compared to investing on your own.

Using Investment Goals at Betterment

Goal-based investing. The idea is prized among financial advisors—and our team at Betterment—but to the everyday investor, it’s often difficult to put into practice.

Explore your first goal

Cash Reserve

Our high-yield account built to help you earn more on every dollar you save.

Safety Net

This is a great place to start—an emergency fund for life's unplanned hiccups. A safety net is a conservative portfolio.

Retirement

Whether it's a long way off or just around the corner, we'll help you save for the retirement you deserve.

General Investing

If you want to invest and build wealth over time, then this is the goal for you. This is an excellent goal type for unknown future needs or money you plan to pass to future generations.

See details and disclosure for Betterment's articles and FAQs.