What’s Wrong With This 401(k) Enrollment Form?

Dec 05, 2014
Activity, Behavioral Finance, Investing, Mutual Funds

I was searching for a 401(k) form to include in a lesson that I am developing when I found this 401K Enrollment Form.

Before diving into the nitty-gritty of this form, let’s take a step back and look at what we know about choices.  For those familiar with Barry Schwartz (TED talk here with over 6 million views), who wrote the Paradox of Choice, he found that too many choices tend to make most of us miserable (from interview with Barry Schwartz):

Making decisions is difficult, and the more choices we have, the more difficult it becomes. We come to feel overloaded by the number of options, unable to cope. Too many choices also increase our regret for all the options we didn’t choose, and make us more disappointed with ourselves if our decisions turn out badly. Additionally, the time we devote to making decisions decreases the time we have to spend on other aspects of life, such as forming close relationships.

Now back to the 401(k) Enrollment Form.  Let’s take a topic that most people feel they know very little about like investing…and lets give them….32 choices and 44 pages.  How about some consumer friendly fund names too, like the “Morgan Stanley Institutional Fund Trust Mid Cap Growth Portfolio Class A.”  Huh?  And we wonder why employees don’t participate in these plans?

About the Author

Tim Ranzetta

Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.

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