12/17/12 – Using Behavioral Economics to Encourage Employees to Make Better Decisions about their 401(k) Plans (Sibson Consulting's Perspectives)

There are many factors that will determine the balance of an employee’s §401(k) plan when he or she reaches retirement. The state of the economy, the trajectory of the markets and other outside factors during an employee’s career all come into play. Every time an employee makes a §401(k)-related choice there is an optimal and a suboptimal decision, and poor choices can lead to lower account balances and deferred retirements. Because §401(k) plans were created as simple supplements to traditional defined benefit (DB) pension plans, the consequences of suboptimal employee decisions used to be relatively minor. Over time, however, as the importance of §401(k) plans has grown, so have the consequences. In addition to hurting employees, suboptimal decisions can also result in an older workforce with higher labor costs and lower productivity. This article will cover why employees make suboptimal decisions regarding their §401(k) plans and what organizations can do to improve employees’ §401(k) decision making.

Read the full article at Sibson Consulting’s Perspectives.