Businesses are taking more control of workers' 401k's, retreating from the 30-year experiment with employees running their own accounts.
The moves are a more-aggressive version of the employer intervention that has taken hold in 401k plans in recent years. Many employers already automatically enroll workers in 401k plans and divert money from employee paychecks into retirement savings. Workers can typically opt out of the employer-directed moves. But they rarely do.
The greater employer control is a philosophical shift in 401k's and other defined-contribution plans, which held $3.5 trillion at the end of last year. The new, more-paternalistic approach, with employers making most of the decisions, resembles a defined-benefit pension plan. But unlike a pension plan, a 401k's investment risk is borne by individuals.Fund companies and plan providers say the moves are necessary to get hands-off 401k savers on track for secure retirements. Left to their own devices, some workers invest far too conservatively, others too aggressively, and many don't save nearly enough.
Nearly one-third of participants who are offered access to company stock, for example, have put more than 20% of their balances into this relatively risky option, according to Vanguard Group.
Automatic plan features will help workers save enough for retirement and improve their diversification, says Stephen Utkus, director of the Vanguard Center for Retirement Research.
Employers introducing some of the more-aggressive automated features are finding that workers generally go along for the ride. Laboratory-equipment makerrecently overhauled its 401k plan's investment lineup, giving participants a two-week period to select their own investments. Those that didn't make a choice were moved to target-date funds early last year.