Despite Record-High 401(k) Plan Balances, Few Workers are Actively Managing their Portfolios

Study Finds Fewer than 1 in 5 Employees Rebalanced their 401(k) Accounts in 2014

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May 28, 2015, 09:35 ET

LINCOLNSHIRE, Ill., May 28, 2015 /PRNewswire/ -- While 401(k) plan balances and participation are at record-highs, a new survey from Aon Hewitt, the global talent, retirement and health solutions business of Aon plc (NYSE:AON), reveals that few U.S. workers are actively managing their 401(k) portfolios, leaving opportunity for workers to be more proactively involved in their accounts and improve long-term savings.

According to Aon Hewitt's analysis of 138 defined contribution (DC) plans, representing 3.5 million eligible workers, participation in 401(k) plans reached 79 percent at the end of 2014, the highest level since Aon Hewitt began tracking this data in 2002. The average plan balance also hit an all-time high of $100,320, up notably from $91,060 at the end of 2013. Additionally, Aon Hewitt found that nearly one quarter of workers (24 percent) increased their contribution rate in 2014. However, few workers are proactive when it comes to managing their accounts. Only 15 percent of workers rebalanced their portfolio in 2014—making it one of the lowest trading years on record. Even when eliminating the participants who are fully invested in target-date funds or other premixed portfolio options—which do not require rebalancing—only 19 percent of workers rebalanced their portfolio. Aon Hewitt also found that on average, workers were invested in just 3.6 different funds, down from 3.7 in 2013 and 3.9 funds in 2012.

"In the last decade, employers have made strides in helping workers prepare for retirement by adding plan features that make saving and investing easier," explained Rob Austin, director of Retirement Research at Aon Hewitt. "At the same time, employees continue to take a passive role in managing their 401(k) plans. Employers can nudge workers in the right direction by providing more robust products, tools and resources."

3 Actions for Employers to Help Workers Make the Most of their DC Investments

Offer access to help tools. A 2014 analysis from Aon Hewitt and Financial Engines showed that workers who took advantage of help tools, in the form of managed accounts, online advice and target-date funds, fare better than those who go it alone. Providing these resources allows workers the benefit of professional management, in order to optimize their returns.
Simplify the fund line-up. Offering multi-manager, white-label or objective-based funds can make the investment process less complex for participants while providing them with better diversification. Additionally, these institutional funds may reduce fees for workers and potentially provide better returns, ultimately improving their long-term savings.
Consider lifetime income options. Defined contribution plans have become the primary retirement vehicle for millions of Americans, but few of these plans provide a way for workers to manage their money during retirement. Lifetime income options can help ensure that retirees do not outlive their retirement savings and may remove the need for participants to actively rebalance their portfolios.

"Encouraging lifetime income is important to many employers, though it's primarily leading-edge companies that are implementing these options for their workers," explained Austin. "We expect to see more companies move in this direction as they gain a better understanding around new laws on longevity annuities and as the price, availability and quality of these types of products continue to improve."

About Aon
Aon plc (NYSE:AON) is a leading global provider of risk management, insurance brokerage and reinsurance brokerage, and human resources solutions and outsourcing services. Through its more than 69,000 colleagues worldwide, Aon unites to empower results for clients in over 120 countries via innovative risk and people solutions. For further information on our capabilities and to learn how we empower results for clients, please visit: http://aon.mediaroom.com.

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MacKenzie Lucas, 847.442.2995, [email protected]

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