As more and more employers opt to auto-enroll employees in target-date funds to give workers a nudge (more likely, a shove) toward a secure retirement, new research from J.P. Morgan shows that while plan sponsors are aiming for the bulls eye, they may be shooting slightly off center with their target-date strategy.

In its recently released white paper “Ready! Fire! Aim? 2009 for Defaulted Participants,” J.P. Morgan Asset Management researchers sought to determine any notable differences between the observations for the general participant population and for participants who were defaulted into a target date strategy through a plan’s QDIA.

The report reveals that:

* Defaulted participants generally have lower salaries.
* Contribution rates for defaulted participants start too low and remain well below industry expectations across their entire careers.
* A sizable number of defaulted participants take loans and J.P. Morgan expects those number to rise if account balances grow larger.
* A number of defaulted participants take pre-retirement distributions, and most withdraw their entire account balances shortly after they stop working.

Is it me, or is this not good news? To my eye, J.P. Morgan has discovered that employees who likely need the most help saving – those with lower incomes in the present – are being defaulted into retirement plans at contribution rates that may set them up for even lower incomes in the future.

It seems Anne Lester, managing director of J.P. Morgan’s global multi-asset group, agrees.

“In tackling the challenges faced by defaulted participants, the most effective target-date design must seek to make assets work harder to capture attractive levels of return at lower levels of risk,” she says. “Reducing portfolio volatility can help mitigate the likelihood of defaulted participants falling into the bottom ranges of retirement outcomes … Given that defaulted participants have somewhat different behaviors to the larger population, these elements of target-date fund design become more critical than ever.”

That will help take care of helping to boost defaulted participants’ account balances. But what to do about defaulted participants taking loans and withdrawing their entire savings at once?

It must be a retirement planning expert’s nightmare come true. I know you pros can only lead the horses to water, so to speak, but such pervasive bad retirement habits must be frustrating.

How do you combat employees’ bad behavior through education and communication? And how do you keep your cool when even after your best efforts, they persist in bad saving habits? Share your thoughts in the comments.