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.


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.


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

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.