How Co-Workers Influence Your 401(k) Choices
Your colleagues may be impacting how you save and invest for retirement
You may not realize it, but the choices you make when investing assets in your 401(k) plan may be influenced by the selections your co-workers are making.
A new study by the
"People may use their co-workers' asset returns to update their own beliefs about the equity market," says
Positive peer returns have a much higher impact on an individual's 401(k) choices than negative returns, the study of 173,923 randomly selected
Individual 401(k) participants react even more strongly when their co-workers have significant positive or negative returns. A retirement saver is likely to increase his equity ratio by 1.4 percentage points when his co-worker's equity returns exceed 4 percent, Lu found. When peers' investments lose more than 4 percent, the saver decreases the equity portion of his portfolio by 0.9 percentage points.
"When your co-workers earn above-average returns on their pension investments, this has a spillover effect on your own pension investment selections," says
Earlier research has shown that your colleagues may also influence whether you sign up for the 401(k) plan or attend a 401(k) education seminar. One study offered a randomly selected subset of employees who were not yet enrolled in their company's retirement account
"An employee who sees colleagues receiving the inducement letter might be reminded of the fair and be led to think that this is an important event worth rewarding employees for attending and thus might decide to attend herself," write
A year later, the retirement-plan enrollment rates in departments in which some employees received the financial incentive were about 1.25 percentage points higher than in departments in which no reward was offered for attendance. But the sign-up rate was not significantly higher among people who received the reward themselves than among those who worked in a department where someone else received the
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Personal Finance - How Co-Workers Influence Your 401(k) Choices
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