Employee behavior often follows consumer behavior. Roll out 55 versions of Tide, and what do many consumers do? By the most basic version they can find or move to a simpler brand. Employees make choices in similar ways, as highlighted by The Retirement Plan Blog, which recently highlighted a Workforce article on the light bulb going off at GM regarding a cluttered set of investment options:
General Motors is chopping the number of investment options in its 401(k) plans from more than 70 to fewer than 40 in a streamlining that the company hopes will improve employee participation in the plans.
Preston Crabill, director of employee benefits and human resource operations at GM, noted recent academic research that indicated having too many investment choices in a 401(k) plan can lead some participants to pick the most conservative investment option and discourage others from participating at all.
“We do believe that by reducing the fund lineup, we should see an increase in participation, an increase in the savings rate and also a better diversified portfolio on the part of our participants,” Crabill said.
70 Investment Options? Are you kidding me? We have 21 and I feel like that is a tidal wave of choice that is difficult to explain at times. Additionally, if you dig into the article a little bit, you'll see that GM actually owned and managed some of the funds, never a great idea from a fiduciary responsibility perspective.
70 Funds.... I am sure that made a lot of folks just play lotto....
Interesting comment here - and there was a recent post by David E. Williams at the Health Business Blog about consumer choice in employee benefit plans:
http://www.healthbusinessblog.com/
His title? What if the consumer can't hack it?
He compares (excess) choice in 401(k) plans to the direction we are heading with H&W Plans.
I have a post up about it here:
http://tomob.wordpress.com/2007/04/27/what-if-the-consumer-can%e2%80%99t-hack-it/
This is a real issue.
Tom O'B
Posted by: Tom O'Brien | May 03, 2007 at 10:08 AM