Despite the millions of dollars companies have poured into online investment tools, a new study by consulting firm Greenwich Associates reveals that only 35 percent of employees are using them to manage their 401(k) plans.
Many employees shun online resources in large part because retirement planning is just not something they think about regularly, says Stephen Utkus, a principal at Vanguard's Center for Retirement Research. In fact, a study by American Express Financial Advisors (AEFA) finds that many people spend just three hours or less working with their 401(k) plans each year. Some employees are insecure about investing, and prefer in-person advice to going it alone online. "There's so much information to wade through, it's hard to do on your own," says AEFA's Craig Brimhall.
But that hasn't stopped companies from moving account management onto the Internet and away from costly paper-based processes. "There's a corporate mandate to move employees online, and that's not going away," says Jeff Maggioncalda, CEO of Financial Engines, a provider of 401(k) management tools and services based in Palo Alto, Calif.
Plan sponsors might be discouraged from further investment in online tools by such low utilization numbers. But 401(k) experts caution that the best approach for reaching employees with retirement information is to combine a variety of methods for different types of investors. For example, technology giant Motorola Inc. offers workshops throughout the year for those who prefer face-to-face education, says Randy Boldt, director of employee rewards. The company also provides online advice through Financial Engines.
"There are very different needs within each company's retirement plan," says Vanguard's Utkus. "You have to offer basic program as well as sophisticated tools." He adds that companies can also increase the use of online tools by sending personalized E-mails to direct people to the site, and by reminding them of the importance of saving for retirement.
How companies provide 401(k) advice services*:
|Over the Internet||43%|
|Do not offer advice, only education||14%|
|Over the telephone||12%|
|* 2003, U.S. Corporate Funds ($25 Million-$250 Million)|
Source: Greenwich Associates