Last week's stock market meltdown didn't put most defined contribution plan participants into a selling mood.
After riding stocks to new highs one year ago, both plan sponsors and defined contribution service providers say participants remained remarkably calm through one of the worst stock market slumps in more than a decade, punctuated by last Monday's 4.3% drop in the Standard & Poor's 500 stock index. That one-day move put the S&P 500 squarely into bear market territory for the first time since 1987.
There was no sign of participant unrest in the face of the market dive, although there were indications of some shifting into fixed income from equities.
Lori Lucas, consultant with Hewitt Associates LLC, Lincolnshire, Ill., said participants have been moving toward fixed income since the second half of last year. In February, 79% of the money that moved went into fixed income, she said. By contrast, in February 2000, there was more transfer activity, and the majority moved into equity.
"There have been very few high days, but when money moves it's heavily moving toward fixed income," she said. "People are responding to the turbulence. As markets pulled back, it slowed activity."
Hewitt's 401(k) index, a daily measure of participant activity by 1.5 million participants and $69 billion in 401(k) assets, showed a barely noticeable movement of 0.07% of total assets through the end of the day on March 13. That, said a Hewitt spokeswoman, was a "very normal" day. Participant activity doubled the next day, but with only 0.14% of assets shifting, "people do not appear to be headed for the hills," the spokeswoman said.
One exception: the website for American Express Retirement Plan Services, Minneapolis, where participant transactions were up 50% last week over the previous week.
"It's been a mixed bag," said Ward Armstrong, president and chief executive officer.
"Many people are moving from aggressive to more conservative investments. But, there has been an almost equal amount going the other direction," said Mr. Armstrong. American Express has about $42 billion in defined contribution assets under management.
In addition, the firm has "seen a significant increase in call volume" he said. "Calls are up 10% over the week before."
Patience, not panic
In most quarters, patience, not panic, seems to be guiding participant behavior: Call volume is up, but asset transfers are holding nearly steady. Plan sponsors say the credit goes to effective investment education.
At J.P. Morgan American Century Retirement Plan Services, Kansas City, Mo., where call volume was up 25% to 30% on March 12 and 13, participants did express "angst about the market," said Zach Hangauer, assistant director of participant services.
"It's been a very busy week," said Mr. Hangauer. "People were concerned, especially if they were in any kind of aggressive fund."
Phone reps might deserve some of the credit for the relative calm. Mr. Hangauer said his firm's new training program, "Ride the Wave," is designed to help reps work with participants who called to encourage them not to make "snap decisions" based on short-term market turns.
"Our concern was that people would make quick decisions which may not be in their best long-term interests," said Mr. Hangauer. "Our objective was to make sure people made informed decisions and not just react to the market. When they call and say they want to move all their assets out of stock funds and into a bond fund, we do some probing and help them understand and make informed decisions. We're not giving them advice, but are trying to help them examine all their options before taking any action."
Some people are "understandably upset" about market uncertainty following 10 years of generally clear sailing for stocks. "It's been such a nice ride," he said. "We knew we were going to start getting calls. Our reps can easily empathize with them because most of them are in the same position with their 401(k)." J.P. Morgan American Century has $17.2 billion in defined contribution assets under management.
Inquiries up slightly
Call center inquiries were up only slightly last week at The Vanguard Group, Valley Forge, Pa., which has about $170 billion in defined contribution assets under management. A Vanguard spokesman said participants "stayed the course" and seem to be taking a longer-term perspective
"We are still seeing inflows," said the spokesman, "But the inflows are now more evenly divided across asset classes than in many years."
At Schwab Retirement Plan Services, San Francisco, participants called but did not panic, said Jim McCool, senior vice president. "Some are calling for emotional support; others are moving their money, but they are not acting like a school of fish, moving in any one direction," Mr. McCool said. Schwab has $16.23 billion in defined contribution assets under management.
"There has not been heavier than normal volumes," said Robert A. Benish, vice president of Zurich Scudder Investments Inc., Boston. "People are understanding that they are in for the long haul and are not panicking."
Calls to INVESCO Services Inc., New York, were up 15% from last March, according to a spokesman. Moreover, there has been some shift in money moving from equities to fixed-income and money market funds, but it was less than 1%, he said. And in some companies, there have been some inflows to company stock.
"There's been some counseling from the call center, but no wholesale panic," the spokesman said.
That participants have that understanding is due to the effectiveness of investment education programs, 401(k) plan executives say.
The overriding theme of most investment education programs is to take a long-term view of retirement savings, proper diversification and the futility of trying to time the market.
Sharon Parkes, manager-trust investments at the $5.1 billion Dallas-based Halliburton Co. defined contribution plan, said the market plunge produced little activity among Halliburton's participants.
"We started several years ago providing information on investment-related topics including diversification, proper financial planning, taking a long term view and messages that market timing doesn't work," she said.
Richard A. Manka, senior investment officer at The Kroger Co, Cincinnati, said he hasn't seen any unusual asset shifts in the firm's $1.5 billion savings plan and hasn't heard of any overriding concerns among participants. He attributed participant poise "100%" to ongoing investment education and "a smart employee population."
Similarly, John Stettler, vice president-benefit investments at Georgia-Pacific Corp., Atlanta, said, "As far as I know, there have been no problems" with participant reaction to the steep dive in stock prices. "I haven't heard of anything," he said. Georgia-Pacific has about $1.5 billion in defined contribution assets.
A spokesman at AT&T Corp., Basking Ridge, N.J., said there has been some movement toward more "conventional" investment choices in its $11 billion 401(k) plan since earlier this year, but no wholesale shift out of equities.
Eric B. Johansen, assistant treasurer and director of human resources at Brockway-Smith Co., Andover, Mass., said, "No calls to the human resources came to shift assets."
Likewise, employees of Virgin Atlantic Airways Ltd, Norwalk, Conn., remained calm, said Kathy Kaminski, plan administrator for Virgin's $31 million 401(k) plan.
"I didn't get any calls, and I usually get a call before someone makes a change," Ms. Kaminski said.
Few participants were making changes at Qwest Communications International Inc., Englewood, Colo., said Donald J. Butt, vice president of the company's asset management subsidiary. However, few participants - between 8% and 10% - ever make changes to their accounts, Mr. Butt said. Qwest has $7 billion in its 401(k) plan.
And, few pilots in the Southwest Airlines Pilot Association contacted plan officials during the market adjustments, said Mark Chase, plan administrator for the $800 million plan.
R. Theodore Benna, president of the 401(k) Association, Cross Forks, Pa., said this state of apparent calm could change if there is a sustained market downturn. Should the markets continue to rock and roll for two years, participants might start to clamor for investment advice, he said.
"It's easy to pick when you're making 15%. If there are negative returns, you will want someone else to do it," Mr. Benna said.