NYT article about 401k's: participation rate for opt-out is 90%, vs. 50% for opt in; more choice and flexibility actually diminishes participation. This is superficially counter-intuitive, you would think the more options, the more ability to satisfy a broad range of wants or needs. For instance, when I enrolled in UTC's 401k in 1988, there were exactly 3 options: an S&P 500 index, a guaranteed-investment contract (that paid 12% that year, imagine!), and a money market. A few years later, they out-sourced management to Fidelity, and added a number of funds. That seemed like a good thing to me.
But apparently, a broad array of choices intimidates or otherwise delays many potential participants (ooh, this is so complicated, I'll wait till I get a round tuit, and then I'll carefully pore over the options, make my decisions, and enroll). The way I have heard this explained is that the people in control are sophisticated, and want lots of options. Unfortunately, that has the off-putting effect on the more numerous, less sophisticated employees.
So here is my solution, that could serve both groups. For the first year of enrollment, offer a very limited array of choices, a la UTC c. 1988. Very little decision-making required, beyond deciding to participate, and how much to invest. After the first year, the gates would open to the full menu of options.
10:38:17 PM 
|
|
