401(k) Plan “DIY” Participants Aren’t Doing Much At Their Own Risk

The theory and hope of defined contribution plans with multiple investment options is that participants will make wise use of their ability to pick funds and periodically review and make changes to their asset allocations to stay on track with their goals. Unfortunately, in many cases this isn’t happening. That’s the conclusion of recent research by Fidelity Investments, a leading provider of workplace savings plans.

Of the approximately 13 million 401(k) plan participants in the plans Fidelity serves, 63% are invested in such funds. Fidelity calls them “do it yourself” (DIY) participants. They stand in contrast to “do it for me” participants, who are invested in managed accounts or target date funds (TDFs), thereby delegating much of the asset allocation decisions to professionals. Fidelity has found that many DIY participants are “unengaged” with their retirement portfolios, based on the fact that they haven’t made any portfolio changes within the last two years.

Fidelity’s data reveals variations in participant behavior by age. For example, 56% of millennial generation participants delegate the investment management decisions to the pros, while 24% actively manage their investments themselves. Only 20% are unengaged participants.

The story is different for baby boomers: Only 27% delegate their decisions. 33% actively manage their own investments, but a full 40% are unengaged participants. Given the boomers’ proximity to retirement — if not already in retirement — this should raise red flags.

So what should you do? Consider making TDFs and managed account funds available, so participants who don’t want the responsibility of picking and choosing among a variety of funds won’t have to do it. If you already offer TDFs and managed account funds, make sure their existence and purpose are well understood by the participants who haven’t selected them.

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