The Things Participants Say

Retirement plan participants can swing wildly between inexperienced and overly confident, according to advisers who have spent any time in enrollment or other participant meetings. Ryan Mumy, president and founder of Mumy Financial Advisors, says he’s especially familiar with the self-perceived experts. “I’ve gotten them multiple times: people who talk about how they day trade their 401(k) accounts, and the large percentage of returns they’ve gotten.”

One participant told Mumy he uses an online service that outlines exactly how to position his investments, giving him a return that’s over 20%—but he won’t disclose the name of the site, Mumy says. Participants commonly believe their past 401(k) plans and the one they’re currently enrolled in is free. “They think the business is paying for it, and they have zero fees,” Mumy says. The most off-the-wall comments relate to unreasonable rates of return that they speak of as if they’re almost guaranteed, and pigheadedly choosing market timing over dollar-cost averaging. Participants often cite a family member who they say is “really smart.”

“We’d ask participants to bring their statements with them to a meeting,” says Ellen Lander, principal at Renaissance Benefit Advisors Group. “Some investors would describe themselves as very conservative investors—then they’d be 100% invested in emerging markets.”

Quite a few plan participants are unfamiliar with the names of funds and the names of the fund companies. “Many think Fidelity is a fund,” Lander says. “When you ask which fund their money is in, they say Fidelity.” Pressed for more information on which fund—emerging markets? Core bond?—they appear genuinely confused. Another common misconception, Lander says, is that people don’t understand the meaning of vesting. “They think it applies to their own money,” she says.

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