Instead, employees appear to voluntarily purchase abundant amounts of company stock, despite the obvious risk of linking their current income and retirement wealth to the financial health of their employer. These patterns are troubling because they raise doubts about the financial security of workers in later life.
Fortunately, new research in the discipline of behavioral finance provides some important insights into the behavior of 401(k) participants and suggests some promising changes that can lead workers to make savings choices that will leave them better prepared for retirement. Contrary to predictions of traditional finance theory, the way the retirement-plan options are framed affects the choices made by participants.