Minnesota 401(k)'s Suffer from Too Many Choices

I read a great article over the weekend that reminded me of a problem that see see frequently in my day-to-day investment advisory business.

“In their still influential 2004 study, “How Much Choice Is Too Much?” Columbia Business School professors Sheena Iyengar, Wei Jiang and Gur Huberman studied data from nearly 800,000 employees of 647 plans in 69 industries in the year 2001, obtained from the Vanguard Center for Retirement Research.

They found that employee participation in 401(k) plans showed significant drops when comparing participation rates in plans offering 10 or more options with plans offering a handful of funds. In other words, the more funds offered, the lower the participation rate.”

These Columbia Business School professors got it right. Ten years after publication, these findings are still relevant today. The majority of Minnesota company 401(k) retirement plans have too many default mutual fund choices.

Ric Lager
Lager & Company, Inc.