The New York Times ran this interesting article yesterday: “In These 401(k)’s, Workers Do Less to Save More.” The article discusses how employees are not saving enough, despite their desire to do so:
New research from the field of behavioral finance, which draws on psychology and economics, provides data on the disconnect between the desire to prepare for retirement and the failure to do so. Researchers have found that for many investors, the task of sifting through pamphlets about their company’s 401(k) plans ranges from unpleasant to horrible. Some people end up doing nothing when confronted with the need to pick savings goals, select appropriate asset allocations, screen investment choices and rebalance their portfolios regularly.
The article reports that when employees must open their own 401(k) plans, “the participation rate for workers with less than 12 months of tenure is 50 percent, compared with 90 percent when employees are enrolled automatically but may opt out.” According to the article, one solution might be to “protect people from themselves” by providing for automatic enrollment percentages which increase slightly each year.
A slightly different picture is presented in this article from the Des Moines Register–“Events puts icing on 401(k) Day“–in which a study by the Principal Financial Group Inc. showed that “of the 2 million people enrolled in Principal 401(k) plans, participation increased 2 percent from 2001 to 2002″ with participants also increasing their contributions from 6.3 percent to 6.5 percent of pay.” However, the study also found that “42 percent of eligible employees under age 35 do not participate in 401(k) plans.”