Nearly half of 401(k) investors have no idea about their investments: CNBC

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According to a new study, nearly half — 46% — of 401(k) investors don’t know what investments are included in their company pension plan CNBC Your Money Pollconducted by SurveyMonkey.

But that’s not necessarily bad news, financial advisers said.

That’s because most employers that offer a 401(k) plan automatically enroll employees in it and, on the employee’s behalf, determine how much money is deposited from each paycheck and how those funds are invested. (Employees can change these later or opt out entirely.) Chances are, employees save money in a target-date fund (TDF), a well-diversified portfolio tailored to the investor’s age.

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The bottom line: Even if a 401(k) investor isn’t aware that he’s saving money or has no idea what funds are available for investing, it’s likely that he’s defaulting to appropriate savings habits, advisers say sets the day. Your asset allocation and diversification may also be better than could be achieved alone, especially for workers who don’t have much investment expertise.

“I don’t think that’s a bad thing,” Sean Deviney, a certified financial planner based in Fort Lauderdale, Florida, said of the investment awareness survey statistics. “It is in their best interest to save for their future income needs.

“It is in their best interest for their employer to agree with them,” he added.

The CNBC survey surveyed 1,673 U.S. adults who participate in their company’s 401(k) plan.

Most 401(k) plans use automatic enrollment

Auto-enrollment hasn’t always been a cornerstone of 401(k) savings. Employers began using the feature more regularly after the 2006 Pension Protection Act made it easier to introduce.

Twenty years ago, the CNBC statistic would have been “more alarming,” said Deviney, a principal at Provenance Wealth Advisors.

According to the Plan Sponsor Council of America, a trade group, nearly 59% of employers that sponsor a 401(k) plan used automatic enrollment in 2021, up from 47% in 2012.

In In behavioral finance terms, auto-enrollment is known as a “nudge,” a mechanism that helps workers enroll in a 401(k) program and save when they perhaps couldn’t have done so otherwise, be it due to procrastination or some other hurdle.

TDFs capture 60% of 401(k) contributions

Target funds are already the most popular 401(k) investments. According to Cerulli Associates, they captured 60% of all 401(k) donations in 2021. Cerulli estimates the share will rise to 66% by 2027.

The funds automatically perform key investment functions such as diversifying across asset classes, rebalancing investors’ savings and reducing risk as participants approach retirement, Lander said.

“For most people, it’s probably better than trying to do it yourself,” she said.

However, employees should not assume that their employer’s auto-enrollment strategy will meet their needs.

For example, companies don’t always automatically enroll workers at an optimal savings rate, Deviney said. It may also not be high enough to meet the full 401(k) match, leaving free money on the table. According to PSCA data, about 43% of 401(k) plans that auto-enroll employees automatically increase their contributions over time.

Auto-enrollment can also be a problem when workers don’t know they’ve built up savings and then inadvertently leave their money behind when they leave their employer.

It’s also important to pay attention to factors such as investment fees, advisers said.

Index and actively managed TDFs charged an average annual fee of 0.27% and 0.82%, respectively, in 2022, according to Morningstar data. Any fund for which an investor is paying “significantly more” than average could consider saving in their 401(k) account only up to the company match and then saving the additional money in another TDF outside of the 401(k). to save individual retirement accounts, Lander said.

Investors who want to learn more about their investment options or contributions should contact their human resources department for instructions on accessing their 401(k) account, Deviney said. Nearly half of 401(k) investors have no idea about their investments: CNBC

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