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Wednesday, January 5, 2011
Not long ago I was in a meeting of community college professors and a concerned professor raised her hand and asked, "What do professors do if a student sleeps during class?".
I responded that I thank the student and let them know that if they, or any of their friends, are willing to spend $300 to put their heads down on a desk and sleep for an hour and 20 minutes to let me know and we can get a classroom anytime. This, of course, got some laughs and, somewhat surprising to me, a number of professors agreed with me. Of course some were appalled.
I think I am beginning to feel pretty much the same way about the whole opt in/opt out issue as it pertains to 401k participation. For those not familiar with the issue, behavioral economists have found that the simple change of requiring people to check a box if they don't want to participate in the 401k increases participation. In other words, if you have to take action to participate in the plan, some people won't participate. Sort of like having to get up off the couch to change the channel when we can't find the remote. We all know that there are some people who will watch the same channel for hours.
OK. So opt in is great? I disagree. I think plan sponsors/human resources need to work harder to explain to employees the benefits of the plan and educate participants on responsible steps to take to have a secure retirement. Participants need to understand that they will be 65 years old some day. They need to understand compounding. They need to think about where they will get an income when they are no longer in the work force. After that, it is the responsibility of the participant to take action.
Yahoo Finance has a good article today on "How Good Is Your Company 401(k) Plan ?". It references BrightScope which rates plans and compares them to their peers. It is a useful tool in getting action on reducing fund costs, improving investment options, etc.