Despite Losses, 401k Participants are Ignoring their Investments
OMAHA, NE, January 14, 2003 -- For many 401k participants, opening their quarterly statement has become a frustrating and disheartening experience. Yet shrinking 401k balances have not prompted Americans to spend more time on financial planning for retirement, according to a survey released today by Mutual of Omaha in consultation with the Profit Sharing/401k Council of America (PSCA).
In fact, 401k participants are spending less time reviewing their plan performance and options than they were two years ago, the survey revealed.
A total of 81 percent of those surveyed spent less than 10 hours per year reviewing their 401k plan and 9 percent said they spent no time reviewing their plan. That's a significant increase from the 3 percent who said they spent no time with their plans and 75 percent who spent less than 10 hours when the same survey was conducted two years ago.
"During these volatile times, it is critical that 401k participants have a disciplined investment strategy with a long-term outlook," said Mutual of Omaha Vice President Ryan Bauer. "If a sound strategy is not in place, this is the time when extra attention is required."
PSCA President David L. Wray added, "Participants need to rebalance their 401k accounts every year. This data indicates that participants are indeed neglecting to do this."
This lack of engagement with their 401k plan is reflected by responses to a question regarding the number of investment funds available in their plan. A total of 15 percent said they had "no idea," more than double the 7 percent who did not know in the 2000 survey.
A dip in investor confidence caused by the bear market could explain the reduced attention to 401ks. Of those surveyed, 59 percent said they were very or somewhat knowledgeable about investing, down from 66 percent two years ago. In both years, the percentage of respondents who viewed themselves as very knowledgeable was only 15 percent.
"Because they feel less confident in their investment abilities, more plan participants today are choosing to do nothing rather than risk making a decision that could impact their returns. However, inattention and inaction can bring its own share of risks," Bauer said.
Two trends in the 401k market over the past few years have been the proliferation of fund choices within plans and efforts to educate plan participants. The survey revealed there may be a growing number of plan participants who now feel that they are offered too many choices. Of those surveyed, 8 percent said the number of funds offered was "a lot more than needed," compared with 4 percent in the 2000 survey.
The trend toward "hands-off investing" argues for expanded use of asset allocation and lifestyle-type funds, Bauer said. The most recent survey indicates that many plan participants would at least consider taking advantage of such plans. Of those surveyed, 52 percent said they believe that their plans offer asset allocation models, and 34 percent said they take advantage of those models. Of those who do not have asset allocation models available, 32 percent said they either probably or definitely would use a model, and another 36 percent said they would consider using one.
"Given the current mindset of 401k participants, the asset allocation model meets a real need. It allows them to select a fund based on their risk tolerance or their time horizon, and be assured that the fund will be managed and rebalanced to ensure that it stays true to its objectives, all without the need for active management by the participants. Based on our survey results, growing numbers of 401k investors see the value of this approach and would utilize it," Bauer said.
A key component of Mutual of Omaha's 401k plan is the Mutual Directions series, a next generation approach to the asset allocation model. These funds bundle institutional-type funds previously available only to pension funds or institutional investors into a series of risk-based portfolios that are actively managed and automatically rebalanced. Mutual of Omaha is a full-service 401k provider serving businesses of all sizes.
The telephone survey, conducted by Weise Research Associates Inc. for Mutual of Omaha, has a margin of error of plus or minus 5.6 percentage points and a 95 percent confidence level.
About Mutual of Omaha
Mutual of Omaha is a full-service, multi-line organization providing insurance and financial products for individuals, businesses and groups throughout the United States. Founded in 1909, Mutual of Omaha and its affiliate companies manage assets in excess of $15 billion and are ranked among the Fortune 500.
About the Profit Sharing/401k Council of America
Established in 1947, the PSCA is a national, non-profit association of 1,200 companies and their 3 million employees. PSCA represents its members' interests to federal policymakers and offers practical, cost-effective assistance with profit sharing and 401k plan design, administration, investment, compliance and communication. PSCA's services are tailored to meet the needs of both large and small companies. Members range in size from Fortune 100 firms to small, entrepreneurial businesses.
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