Hewitt Associates and Financial Engines January 2010 Report – Professional Help in Defined Contribution Plans: Is it Working and for Whom?

The topic of professional investment help has gained momentum in recent years amid the recent volatile markets and the importance of 401(k) plans in participants meeting their retirement goals. In the recent 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. It 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.

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. The 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.

The main findings of the report include:

Participants using help are better off. On average, participants using help — target date funds, managed accounts or online advice — experienced higher median returns and lower variability in risk than participants going it alone. The median annual return for all participants using help was 1.86% higher than those who did not.
Age is the key driver of help usage. On average, new hires and younger participants invest in target date funds, near- and post-retirees utilize managed accounts, and younger, higher balance participants use online advice. While not as strong a predictor as age, account balance also influences the type of Help participants use.
Near retirees need more help. Of all participants in the research, retirees and near-retirees not using help show the greatest variability in risk. The biggest mistake these participants make is taking too much risk near retirement.

Full 46 Page Report:

http://www.hewittassociates.com/_MetaBasicCMAssetCache_/Assets/Articles/2010/DCHelpReport_Jan2010.pdf