While i agree with Becca that employees need to take responsibility for their finances, there are many workers who don’t have a handle on even the basics of financial planning. It’s amazing how many institutions of higher education graduate their students without any training in personal finance, let alone economics. For these people, some rudimentary guidance in 401k’s and saving could go a long way. For the financially savvier employees out there, employers can just provide the tools to help them better plan for their futures.

It’s also great to see financial writing done in such a readable, colorful, and informative fashion. Keep it coming.

Theo

Thanks for your comment!

I think you’re right that target date funds and automatic enrollment are designed for employees that don’t want to play an active role designing their retirement portfolios. And employers and plan providers are working hard to get this group of non-motivated savers into effective retirement plans. I just wish more employers would also spend a little more time and money on the group of employees who do want to play an active role managing their retirement investments.

Yes, there are resources out there. But it takes time and expertise to weed through these resources. I think that the best investment advice comes from third-party independent financial advisers who offer unbiased insight on managers, asset allocation and fees. It would be nice if more employers helped employees get this advice.

Kristen

I don’t believe in half-way measures; just as employers ought to fully explain benefit options — such as how to choose between different health insurance plans — they could do a little more to help employees learn about retirement options.

Thanks for your thoughtful comments. I agree that we employees need to find our way into “optimized” retirement portfolios - meaning that we capture as much return as possible for the amount of risk we take on in our portfolios. The question is: how do we get there? Advice, education and managed accounts all seem to be part of the answer.

Kristen

You mentioned that the most troubling part of simplified solutions, such as TD funds and automatic enrollment, is that it ignores the employees who wish to take a more active role in managing their plans. I don’t think these services were set up with this employee in mind. At some point I think the responsibility of actively managing your own investments lies with the individual. There are an infinite amount of resources available to the public these days to give individuals the information they need to make informed investment decisions. If one doesn’t hold themselves accountable to learn about investing on their own, then maybe the Target Date Funds is their best option for retirement. Why place this additional responsibility on the employer?

It is debatable whether or not automatic enrollment is worth the cost to employers; and even whether it results in employees saving more for retirement.*

But employers and plan fiduciaries alike have an interest in giving participants viable paths to optimized portfolios. Putting together a portfolio of assets that provide the least risk for any level of expected return — or the greatest expected return for a given level of risk — is the only free lunch in the investment world. Outside of the use of efficient portfolios it is all a trade off: risk vs return.

And while managed accounts are but one path to efficient portfolios, they are clearly an important path. And yes, some employers do incorporate advice into the set of services offered to participants without any additional cost.

*Most of the savings that gets into the plan earlier as a result of automatic enrollment is taken out in loans or early withdrawals — if it is not forfeited or distributed when an employee terminates after a few years employees.