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But the evidence is piling up that we were wrong. According to our recent internal study, retirement plan investors still average only 1.7 different asset classes in their portfolios. And an astounding 95% of them have no idea how much risk they are taking – despite those newsletter articles we all wrote about “Don’t Put All Your Nest Egg In One Basket.”

Another study, sponsored by Hewitt Associates, suggests that even targeted education doesn’t work very well. Researchers from Harvard and Wharton surveyed low-saving employees at a Fortune 500 company, both before and after presenting a program of financial education. In the initial survey nearly 70% felt they could afford to save more in the 401(k) plan, but 77% didn’t intend to, 73% didn’t know the amount of the company match, and 54% couldn’t even say if there was one. After receiving the education, 51% STILL didn’t know whether to save more. And of the 28% who planned to increase their savings rate, only half actually did within two months.

31 flavors and they still want vanilla
Providing a wider range of investment options doesn’t help much, either. Many plans have hugely expanded their offerings in recent years, but according to a study reported in Plan Sponsor, more choice just confuses participants. Researchers found that no matter how many funds were offered – anywhere from 4 to 59 – the range of offerings had practically no influence on participant behavior. Most people still split their assets equally across three or four funds, while 38% of new participants chose just a single fund.

In any case, a little learning is a dangerous thing (as the saying goes). Given too many options and too little perspective, individual participants can make costly mistakes – such as choosing asset classes inappropriate for their goals, or worse, trying to time the market. There’s a reason investing has been called “the loser’s game.”

If it ain't broke...
How can plan sponsors and providers fix participant education so it’s more effective at changing employee behavior? Frankly, I don’t think it can be done. For some investors, it already works fine. For the rest, it’s never going to.

Realizing this, forward-thinking plan sponsors are using various combinations of education, advice and managed account services. Some have even tried rolling everyone into a managed-account environment unless they actively opt out.

On the surface this might sound heavy-handed, even paternalistic. But if the goal is to help people retire comfortably, the old, do-it-yourself 401(k) model may not be the best way to get there, especially for some at-risk employee populations. None of us wants to do our own brain surgery – and some wouldn’t even trust ourselves to install DSL. Investing is hard, and it’s important. Maybe it’s best left to the experts.