Most defined contribution plan participants left their asset allocations alone during recent market turbulence.
But many with high company stock exposure -- and those in ESOPs -- needed strong stomachs to withstand the paper losses they suffered.
Although call volumes to some providers' customer service centers soared during the periods of greatest volatility in late August, less than 1% of participants made an exchange.
But the Hewitt 401(k) index showed, for the turbulent week of Aug. 24, many plan participants bought equities, especially their employers' stock. (The index from Hewitt Associates LLC, Lincolnshire, Ill., tracks the daily transaction activity of 1.4 million participants and $62 billion in assets.)
Some mutual fund companies reported modest inflows to equities. Equity funds at The Vanguard Group of Investment Cos., Malvern, Pa., for example, had positive net cash flow for August -- especially in index funds, said spokesman John Demming.
General Motors Corp., Detroit, saw little activity, save for small net inflows to GM common stock from participants in GM's defined contribution plans, said Richard O'Brien, executive director of employee benefits.
"There is really no sense of panic among our participants," Mr. O'Brien said. "They may be viewing the current down market as a good time to buy and build up their company stock somewhat," he added.
GM's stock price dropped 18% to between July 17, when the Dow Jones industrial average hit its high, and Sept. 3.
Employee owners of United Airlines suffered big paper losses in both their $4 billion to $5 billion employee stock ownership plan and their $4 billion 401(k) plans.
Shares in parent UAL Corp. plunged 31.1% between July 17 and Sept. 3. Yet employees remained calm, said David J. Dykstra, assistant treasurer.
Employees can't withdraw money from the UAL ESOP until retirement.
"The ESOP rules are what they are, and our employees know there's not much point in panicking about the market," Mr. Dykstra said.
Participants in ESOPs need strong stomachs, because they usually can't direct the investment of ESOP assets the way they can 401(k) plan assets, noted Corey Rosen, executive director of the National Center for Employee Ownership, Oakland, Calif.
UAL employees direct the investments of their $4 billion 401(k) plans. About 3% of those assets are in company stock. That's interesting, Mr. Dykstra said, because employees already own so much UAL stock through their ESOP.
OTHER PAPER LOSSES
Employees at Abbott Laboratories, Chevron Corp., Textron Inc. and others -- who have more than 80% of their defined contribution assets in employer stock -- have suffered paper losses in the market's fall.
As of Sept. 3, shares of Abbott were down 10.6% from July 17. Employees had 90% of plan assets invested in company stock as of Sept. 30.
Chevron stock was off 8.6%; Chevron employees had 85% of plan assets invested in company stock Sept. 30. Textron's stock dropped 16.7% since July 17; Textron's employees had invested 80.9% of their retirement plan assets in company stock Sept. 30.
Employees of some companies with smaller defined contribution plans -- including Texas Instruments, R.R. Donnelley & Sons Co. Inc., Stanley Works and Archer-Daniels-Midland Co. -- have all of their plan assets in company stock.
Compared with July 17, when the DJIA soared, TI's stock was down 17.4% as of Sept. 3; Donnelley, down 19.5%; Stanley Works, down 16.3%; and ADM, down 13.8%.
Values of some of the country's largest ESOPs swung like pendulums or plunged dramatically. For example, stock in Procter & Gamble Co., whose ESOP had more than $16 billion as of Sept. 30, dropped 15.1% between July 17 and Sept. 3.
LONGER TIME HORIZON
"Investors in ESOPs have a longer term horizon than investors in other kinds of defined contribution plans," said Mike Butler, a managing consultant at Hewitt Associates, Rowayton, Conn.
"There may be some quietly worried people in their 40s and 50s out there who are contacting (their employers) about their options right about now, but there is no panic," Mr. Butler said.
Participants in 401(k) plans, most of whom have investment control, seemed to weather the market well.
Hewitt's index shows since Aug. 19, participants transferred only a fraction of a percent of their assets among options.
On Aug. 31, for example, the day the DJIA plunged 512 points, only 0.23% of the $62 billion tracked by Hewitt was transferred.
Transfer volume was four times greater than the index's typical activity level. And virtually all of the money was moved to fixed income and stable value from equities that day.
Hewitt's Mr. Butler said he is "struck by the lack of anxiety, action or real worry" of plan sponsors.
"I think there has been some concern about employee attitudes and perceptions as the company stock they hold falls. But I think people are holding their breath, waiting to see what will happen," he said.
If the market remains turbulent and trending downward for the next three weeks or so, Mr. Butler anticipates plan sponsors will begin to beef up educational efforts, especially extolling the virtues of company ownership through stock. But he doesn't expect them to change the investment options offered in their plans.
Other service providers confirmed the Hewitt 401(k) index's findings: While phone call volume was up, they said, transaction activity was slight.
Of the 1.7 million 401(k) plan participants in Vanguard's record-keeping system, 4% called automated and operator call centers Aug. 31. But less than one-third of 1% made an exchange that day, said spokesman Mr. Demming.
At Fidelity Investments, Boston, less than 1% of its 12 million investors moved to more conservative investments from equities, said spokeswoman Anne Crawley.
"Overall, we saw some movement, predominantly from equities into money market funds and some into bond funds, but flows for the month of August to equities were positive," she said.
Fidelity surveyed about 400 of the defined contribution plan participants in its system between Aug. 28 and Aug. 29. The survey found that while 91% said they were aware of market events, 74% said they would do nothing to change their asset allocations if the market were to move incrementally lower.
In fact, 10% said they would invest more in stocks. Only 6% said they would move out of equity options.
At Scudder Kemper Investments, Boston, call volume to defined contribution plan service staff was up 20% Aug. 31; call volume to the automated system was up 60%.
Most of those moving assets switched to money market and stable value options, from equities. And, most of the movement came from participants who are nearer retirement and from less experienced investors with smaller account balances, said spokesman Bill Haynes.
On Sept. 2, by contrast, transfers were split evenly between buyers and sellers of equities, Mr. Haynes said.