For that reason, the hottest trend in 401(k) plans is making investing easier for employees. More plans automatically enroll workers in target-date funds or other professionally managed, diversified options. Plans may also automatically increase contribution rates each year. Employees can opt out, but few do.
Now, spurred by data that shows amateur investors getting amateur returns, many retirement plans are going a step further. On the assumption that many workers invest all wrong, some employers are overriding their workers' existing selections. Unless employees object, companies are re-enrolling them in new funds, usually in target-date funds with risk profiles suited to their age.
The process, known as re-enrollment, is still rare. But it's catching on with "leading edge" employers, says Jean Young of the Vanguard Center for Retirement Research. Two-thirds of plans joining Vanguard's Retirement Plan Access, a 401(k) option designed for smaller plans, are re-enrolling workers into new funds, she says. They're convinced by data showing that many older workers take too much risk, sometimes putting all their money in stocks, and that younger workers may take too little risk by avoiding stocks entirely, she says.
How do employees react when employers swoop in and take over? "We haven't seen anyone get angry," says Robyn Credico of consulting firm Towers Watson. Employees get ample notice. They can always opt out of re-enrollment, and choose their own fund lineup.
That might make sense for workers who keep outside investments and pensions in mind when making their 401(k) selections. But there's plenty of evidence that workers really don't know what they're doing when it comes to their 401(k)s. Odds are they're not going to object when someone shows them how to do it better, and may not even notice.
Still, overriding employees' retirement plan choices -- however well-intentioned a move -- can seem heavy-handed. That's why the vast majority of companies that re-enroll only do so when they switching retirement plan providers. "Those are really easy opportunities to change peoples' behavior," Credico says. If it means improving investment returns, a heavy hand may be welcome.
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