Help in Defined Contribution Plans:IS it working and for Whom?

Posted on February 3, 2011. Filed under: Uncategorized |

The age old question is answered, does the advice I get really make a difference? Well according to a joint study done by Financial Engines and Hewitt the answer is YES!!!!

We at RJ20 have pasted the executive summary from the research report here on our blog if you would like a copy of the entire article please e-mail us at and we can send you a copy.

Professional help provided to participants in employer-sponsored 401(k) plans has been growing steadily for the last decade. In the landmark report “Help in Defined Contribution Plans: Is It Working and for Whom?,” Hewitt Associates and Financial Engines examine the topic of employer-sponsored professional help in 401(k) plans and answer the questions:

•           Are participants using professional 401(k) help better off?

•           Which participants use professional help, and what kind of help do they use?

This report focuses on three of the most prevalent and fastest-growing types of professional investment help in employer-sponsored 401(k) plans today:

target-date funds, managed accounts, and online advice (referred to collectively as “Help” throughout this report). Participants not using any of these three types of Help or those not using Help appropriately make up the Non-Help group.

Linking participant Help usage with actual results, this report looks at participant behavior and portfolio risks and returns during the volatile period between January 1, 2006 and December 31, 2008. Our report is based on a data set of seven large plans representing more than 400,000 individual participants and over $20 billion in plan assets.

Help Is Working; Participants Using Help Are Better Off

The main finding of the report is that 401(k) participants of all ages using employer-provided 401(k) Help (defined as target-date funds, managed accounts, or online advice) are better off than those who do not use Help across a variety of market environments. On average, the median annual return for Help Participants was almost 2% (186 basis points) higher than for Non-Help Participants, net of fees.

Participants using Help have portfolios with risk levels that are both more appropriate for their retirement horizons and more efficiently allocated among the options in their plan. Non-Help Participants often have inappropriate risk levels and/or inefficient allocations, both of which can significantly affect portfolio performance. Of particular concern, given their limited time to recover from any mistakes, is that the greatest variability in observed portfolio risk levels is found among retirees and near-retirees not using Help.

Participants Are Using Help

On average, across the more than 400,000 plan participants represented in this report, about one-quarter (25.3%) currently use at least one of the types of help offered within their 401(k) plans, while three quarters (74.7%) do not. Average usage of Help overall varies across the seven plans, from a low of 15% to a high of more than 35%.Plan design (specifically, automatic enrollment coupled with a qualified default investment alternative the length of time Help has been in place in a plan, and participant demographics all impact Help usage.

Multiple Help Options Required to Meet Participant Needs

The report findings suggest that no single type of Help is necessarily suited for a participant’s entire work life, and a range of help offerings is required to meet the retirement needs of a diverse workforce. For example:

• Target-date fund


• Managed account


• Online advice



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