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TDFs Still a Mystery to Most Participants

While most participants say they have heard the terms “contribution rate” (82%) and “vesting” (77%), only half (50%) had heard of target-date funds, even fewer (39%) had heard of target-risk funds — and most of those participants don’t understand the terms.

As for dollar cost averaging, the principle was familiar to just 45% of survey respondents. However, two-thirds of participants who have heard of target-date or target-risk funds say they don’t understand the term, according to “What’s Working and Not Working for Small Plan Participants: The Guardian Small Plan 401(k) RetireWell Study 2.0.” 

Participants of all plan sizes expect a majority of their post-retirement to come from 401(k)s, and 77% also perceive it to be the most important source of income in retirement. That’s more than the 62% who cited Social Security as very important, as well as the 61% who cited personal savings and the 56% who cited earnings from employment.

Perhaps not surprisingly then, the vast majority (92%) of participants are satisfied with their 401(k) plan overall, and about a third (32%) are very satisfied. Additionally:

  • 90% are very or somewhat satisfied with the investments available in their plan;

  • 87% are very or somewhat satisfied with the information they get about their plan; and

  • 89% are very or somewhat satisfied with the features of their plan (apart from the investments).

Fee Sense?

Asked to assess the reasonableness of their 401(k) fees, nearly a quarter (23%) felt their fees were very reasonable, and about six-in-ten thought they were somewhat reasonable. About one-in-five (19%) felt those fees were either somewhat or very unreasonable.

On average, they are hoping to replace 95% of their current income in retirement, although there was some diversity in the responses: 

  • 19% were hoping to replace less than half of their pre-retirement income;

  • 18% were targeting 50%-70% of that income;

  • 13% were targeting 70%-100%;  

  • 27% were looking for full replacement income; and

  • 15% were focused on more than 100%.

Their confidence in achieving that target was also varied. Although half were somewhat confident in achieving their goals and 21% were very confident, 22% were not very confident and 6% were not confident at all.

As for those who were very confident, the survey’s authors noted that they usually have high balances, above-average incomes, high deferral rates, use a financial professional and allocate assets appropriately.

The average 401(k) participant under age 50 contributes $8,700 per year to his or her account; for those 50 or older, the average is $9,100. In both cases this equates to a median deferral rate of 9% of personal income.