Plan sponsors have received no reports of anyone jumping out the window after receiving a third-quarter 401(k) statement. But there may be some who considered the ledge.
"The remarkable thing is we got questions about depreciation, and they did not think a loss could occur on retirement investment income," said Joel Disend, president and chief executive officer of New York Life Benefit Services, Norwood, Mass.
The sticker shock resulting from participants comparing their Sept. 30 balances to those of June 30, the last time they received statements, might have prompted other actions:
* Trading activity by 401(k) participants was moderate to high in the 10 days following the close of the quarter, even though the market was relatively flat, noted Michael McCarthy, a consultant at Hewitt Associates LLC, Lincolnshire, Ill. And few participants used the down market as a buying opportunity, he said.
* About 1.3% of participants serviced by Scudder Defined Contribution Services, Boston, made changes to their plans after receiving their third-quarter statements, said Paul Bourgeois, vice president. That's up from the 1% who shifted assets following receipt of their second-quarter statements, he said. Meanwhile, participant calls were 2% above the forecast. "People are looking for information, advice, reassurance and a little hand holding," he said.
* At Hartford Life Insurance Co., Hartford, Conn., movement to fixed-income and guaranteed investments from equities increased, said Peter J. Vogt, assistant vice president and director of corporate markets.
* Call volume was up about 10% at Delaware Investment & Retirement Services Inc., Philadelphia, said Mary Rudie Barneby, president. It's clear plan sponsors and service providers need to "step up our efforts to include the concept of risk management as a tool," she said.
* New York Life's call center "got questions it had not gotten before," Mr. Disend said. For example, participants inquired about account values on a day-to-day basis and asked why particular kinds of mutual funds were chosen as plan options.
Quarterly statements aren't as important as they once were, now that participants can track their funds' performance daily by telephone or Internet, Mr. McCarthy said.
But they nevertheless "pack a punch," he noted, because they include the beginning balance, end balance and the account's percentage gain or loss.
Still, participants aren't rebalancing regularly, New York Life's Mr. Disend said. The average number of investment changes is one or less a year, he said.
Only about 15% of plan participants serviced by New York Life use the firm's automatic rebalancing service, he said.
According to an as yet unreleased New York Life survey, participants can be divided into about four groups of investors: savvy investors; people who are not interested; people who know they do not know enough; and investors who become interested after being educated. Between 20% and 25% of plan participants are uninterested, he said.
A number of 401(k) plan executives said participants remained calm, looking to the long term and chalking up the entire episode to an expected market downtick.
But company executives hastened to add that what preserved the peace around their company's water cooler was the market's September recovery.
Joe Schuster, manager of qualified benefit plans for Compuware Corp., a computer company in Farmington Hills, Mich., questioned whether plan participants realize the effect.
"Statements can be misleading to the employee who keeps adding new contributions," Mr. Schuster said. "That's what has helped a lot of poor-performing funds. Employees look at their total balance and as long as it's higher than the previous quarter, they're happy."
An executive who runs a large East Coast defined contribution plans credits the news media for preventing statement shock.
"There's been so much in the newspapers, people would have to be oblivious if they opened their quarterly statements and were surprised," the executive said.
Others executives did not think there was much to be concerned about."It does not seem like a rush on the bank to me," said Dan Sauvigne, program director of capital accumulation programs with IBM Corp., Stamford, Conn., pointing to Hewitt's findings.'
With a long bull market in the recent past, "even if we ended the year in a flat or negative position, so what?" Mr. Sauvigne said. "The underlying conditions are still healthy. We have not seen dramatic swings on the movement of money by participants"
But Scott J. Weiner, vice chairman of Payden & Rygel, a Los Angeles-based investment management firm, said he believes investors are frozen with indecision. "Three years ago, retirement investors had a 60/40 mix of equities to bonds in their portfolios," Mr. Weiner said. "After years of a raging bull market, participants upped their mix to 70/30."
Just when people were starting to think that they needed to get more in balance, along came a market correction, he explained.
"The free ride is over," he said. People are now wondering whether they should have rebalanced before the market downturn and they are waiting to see what will happen next, he said.
"A lot of people are paralyzed," Mr. Weiner said. But he added he is more concerned about how sticker shock will affect wealth and spending habits.
"Last quarter was a hit. People may realize they are not as wealthy as they thought and consumer confidence may start going down," said Mr. Weiner. "This may be troublesome for growth in the economy in 1999."
