Advisors are filling the ‘401(k) expertise gap’ to boost the confidence of retirement savers

Half (50%) of Americans feel confused understanding their workplace 401(k) plan options, according to a Pontera 401(k) Literacy Survey. Millions of Americans are staking their retirement futures on their 401(k)s, yet many struggle to navigate the maze of investment options, fees and financial decisions. However, plan participants who work with a financial professional are more confident about their future in retirement, better informed about their plans and contribute more to their accounts, according to the survey. The nationwide survey of 2,010 workplace retirement plan participants from 50 states found that eight in 10 advised participants – and 100% of baby boomers – enjoy greater peace of mind and confidence. These participants are also more engaged with their plans than un-advised workers and more likely to maximize their annual contributions. Other key findings include:

• 66% of advised participants contribute the maximum to their workplace account, compared to 40% among non-advised.
• Advised participants on average say they contribute 15% of their income to their workplace account, compared with 10% for non-advised participants.

“Our survey reinforces what we have long proclaimed: Advisors help retirement savers achieve better outcomes,” said Yoav Zurel, Co-founder and Chief Executive of Pontera. “The volume and complexity of information that must be absorbed can be overwhelming, so it’s encouraging to see that participants are more confident and invested in their 401(k)s when they have an advisor to educate and guide them.” Pontera, a fintech company, set out to identify the difficulties U.S. workers face when managing their employer-sponsored 401(k), 457(b) and 403(b) plans. By design, half of the respondents employ a financial professional while half do not, enabling Pontera to compare knowledge and sentiment of the respective groups and determine if advisors have an impact on clients with workplace plans. The employer-sponsored 401(k) has become the largest source of retirement security for most Americans, with Social Security’s uncertain outlook and only 15% of private sector workers having access to defined-benefit pensions. More than 85 million U.S. workers have a workplace retirement account, while the median family holds 45% of their net worth in retirement savings. Pontera’s survey confirmed 81% of retirement savers consider their 401(k) the most critical part of their retirement savings plan, compared with 67% for traditional IRAs and 61% for both Roth IRAs and annuities. Americans say the most important reasons they participate in workplace-sponsored plans are employers’ matching contributions, automatic payroll deductions, the benefits of investing pre-tax dollars and tax-deferred growth. “Workplace-sponsored retirement accounts, like 401(k)s, offer many advantages over IRAs, such as higher annual contribution maximums, employers’ matching contributions, and high-quality investment funds with low expense ratios,” said Jerry Bonnabeau, Head of Defined Contribution Partnerships at Pontera. “Retirement savers also prefer the convenience of consolidating their accounts, which can minimize the risk of losing track of hard earned savings. To be sure, financial decisions depend on personal circumstances, which is another reason for more employers to enable plan participants to get trusted, personalized guidance from their chosen financial professional.” Still, there are significant knowledge gaps that get in the way of participants making the most of their retirement accounts. In the survey, eight in 10 respondents report they experience at least one challenge managing their workplace plan. Likewise, 87% have at least one challenge when selecting investments, a number that rises to92% among Gen Z respondents. Other findings include:

• 74% would welcome professional help managing their accounts, while 77% say they’d be willing to pay for advice.
• 59% say they have had doubts about their 401(k) investment decisions.
• 50% say they are confused about understanding their plan options.

Financial literacy

Overall, Pontera found a significant number of 401(k) participants struggle to fully understand their plan offerings. While six out of ten 401(k) participants consider themselves “highly financially literate,” 85% were unable to correctly answer all the questions while 46% of respondents scored “C” or lower. “Financial literacy is a major issue for our society when individuals are responsible for saving for their retirement,” Zurel said. “These knowledge gaps highlight a critical need for finding additional ways to support and educate retirement savers.” “Americans rely on their 401(k)s to secure a comfortable retirement and they have made it clear, in our survey and others, that they want more education and support managing their workplace-sponsored accounts,” said Bonnabeau. “Just as plan participants can choose from a wide range of investing options, they can benefit from a range of solutions and resources to help them manage their 401(k)s. “Enabling workers to get personalized account management from their trusted advisor can be a valuable complement to education tools, target date funds, managed accounts and other solutions, helping them to optimize their accounts and encouraging more participants to keep their accounts when they move on.”

The value of advisors

Pontera’s survey shows 401(k) engagement and confidence in a secure retirement soars when participants are empowered by personalized support. Advisors have a positive impact on clients’ 401(k) accounts in many ways:

• 81% of advised respondents know how much they pay in plan fees, versus 62% of non-advised respondents.
• 51% of Americans with advisors check their balance and contributions at least weekly, versus 34% of Americans without advisors.
• 48% of advised participants monitor portfolio performance, compared with32% of un-advised.

Having an advisor, the survey shows, helps workers navigate retirement plan complexities, including helping participants assess risk tolerance, evaluate the tax implications and allocate assets in line with their comprehensive plan. They also help their clients better understand fees, contributions, and investment performance. “Enabling personalized, in-plan 401(k) advice from their trusted advisor is an important solution to the challenges faced by many retirement savers,” said David Goldman, Chief Business Officer, Pontera. “Personal guidance from a professional advisor can bridge the 401(k) literacy gap, provide retirement savers with greater peace of mind and help better prepare them for retirement.”