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CCH® PENSION AND BENEFITS — 3/20/08

Education level and marital status affect 401(k) investments, Wyatt study finds

Although the average U.S. household invests about 55 percent of its 401(k) or other defined contribution plan assets in common stocks, many Americans are investing all or nothing in equities, due to a host of factors, including education level and marital status, according to a new analysis of government data by Watson Wyatt Worldwide.

Wide variation in investment behavior

The study, which analyzed data from the Federal Reserve’s Survey of Consumer Finances, found a wide variation in investment behavior. For example, although almost 20 percent of working households allocated nothing to equities in their retirement accounts, more than 25 percent were “all in,” allocating 100 percent of their defined contribution plan assets to equities. The analysis is based on 2004 data, the latest year of statistics available for this survey.

Other factors are correlated with the likelihood of 401(k) plan participants’ investing in equities, the study found. Generally, plan participants who are younger, better educated, risk-tolerant, in the private sector and with a pension plan and who engage in long-range financial planning hold a larger share of equities in their retirement accounts than do other participants. Investors who are married, in good health or not a union member are less likely than other investors to avoid equities altogether.

“Some of the investment behavior, such as older workers’ taking on less risk, follows what investment advisers have long suggested,” said Mark Warshawsky, head of retirement research at Watson Wyatt. “But the influence of other personal factors — such as individuals’ education level or health status or whether they have a pension plan at work — raises important issues for policymakers and employers alike,” he observed.