Under the microscope: A closer look at the diversification and risk taking behavior of 401 (k) participants and how plan sponsors can address key investing issues

Article Abstract:

The article looks at research findings on asset allocation choices of 250,000 participants in 401(k). The research findings revealed four key findings: as plan sponsors fear, the typical participant portfolio is poorly diversified; on average, participants do not tailor their portfolios to their time horizon; across most demographics, typical portfolios risk levels are uniformly fairly aggressive; and participants may not be viewing company stock as an asset class, but as "bonus." Participants undoubtedly favor large stock partly because of the exceptional performance of the Standard & Poor's 500 Index over the past five years, and because of their greater familiarity with this segment of the market. Plan sponsors are increasingly turning to advice to ensure that participants have well diversified portfolios. Results shows that Internet advice also needs to be directive in terms of matching participants' time frame and risk tolerance with appropriately risky asset mixes. The quality of Internet advice's risk tolerance assessment should be a driving factor in provider selection. State-of-art independent Internet advice products allow participants to choose the view of company stock that best fits their situation. Finally, plan sponsors can break down their own participant base by demographic variables and determine if there are problem areas. Plan sponsors may also put an effort to facilitate rollovers of balances from prior employers' plans into the current employer's plan. The job of the plan sponsor is accomplished not by virtue of making the best plan but by providing participants with the knowledge and the tools that will enable them to wisely prepare for retirement.

Investment advice, Investment Advisory Services, Retirement Benefits, Statistical Data Included, Management, Financial services industry, Financial services, Portfolio management, Investments, Investment advisers, Polling Data

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Shifting responsibility to workers: the future of retirement adequacy in the United States

Article Abstract:

A study showing that the disappearing defined benefits plan coverage and the retiree medical subsidies are likely to affect the participants of 401(k) participants is discussed. It may be recalled that 401(k) participation is voluntary in nature. With the onus of retirement income responsibility falling on the shoulders of the workers, innovative methods of retirement planning are needed. Suggestions are offered to the employers to help in the retirement planning for their employees under the present circumstances.

Forecasts, trends, outlooks, Forecasts and trends, Market trend/market analysis, Defined benefit plans

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Individual responsibility and the imperfect investor: the need for automating the 401 (k) plan

Article Abstract:

The capability of the automated 401 (k) plan, which is the major retirement program of the majority of plan sponsors, to tackle inactivity is stressed. The impacts of the program on retirement income replacement rates, plan participation and nature of investment are also examined.

Analysis, Evaluation, Individual responsibility

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