Are 401(k) options more confusing than health insurance benefits?

A majority of participants in 401(k) plans say the investment choices are harder to understand than their health insurance benefits. According to results of a participant survey released today by The Charles Schwab Corp., 52% of respondents find that explanations of their 401(k) investments are more confusing than explanations of health benefits (48%). As a result, participants are clearly puzzled about choosing the right investment mix. Of the 1,004 people surveyed, 57% said they wish there were an easier way to figure out how to choose the right investments, and 46% don't know what their best investment options are. This lack of knowledge creates a lot of stress for 34% of the sample. Confusion “is a common theme we’ve seen” among participants and points to the value of getting some advice, said Steve Anderson, head of Schwab Retirement Plan Services. Confidence in making investment decisions nearly doubles when workers have some guidance. When asked how confident they would be in making the right investment decisions if they had the help of a financial professional, 61% said they would be either extremely or very confident. Without advice, only 32% expressed confidence. Despite qualms about managing their retirement plans, 61% said their 401(k) plan is their only, or their largest, source of retirement income. The good news? Plan participants said their retirement nest eggs are in decent shape overall. Some 70% said their 401(k) is in better shape now than ever before, and three-quarters (74%) believe that their 401(k) has recovered from the financial crisis as fast, or faster, than they had expected. Fifty-five percent have increased their 401(k) contributions in the past two years. Schwab's Retirement Plan Services unit has been promoting the idea that low-cost plans, combined with advice, are the best way to meet the retirement needs of workers. In January 2012, Schwab launched its Index Advantage 401(k) plan, which offers a range of index funds together with advice from GuidedChoice Asset Management Inc. Based on its experience with plan sponsors, participants who use advice on average bump up savings from 5% of salary to 10%, Mr. Anderson said, and use eight asset classes instead of just three. In addition, sponsors who auto-enroll employees in the advice service get up to 85% engagement, versus 8% to 10% when employees themselves decide, he said. Schwab will be rolling out an additional advice offering from Morningstar Associates LLC early next year. A rollout of an ETF-based 401(k) plan is expected later this year. The brokerage firm charges plan sponsors 45 basis points or less, depending on individual participants’ balances. Advice includes individualized model portfolios that are based on savings rates, asset levels, age and other payroll information, together with input from individual participants, Mr. Anderson said.