Defined contribution plan executives are girding themselves for a massive shift of assets into stable value funds and out of equities when participants receive their third-quarter statements in coming weeks.
Even before the quarter ended, Hewitt Associates LLC's 401(k) Index showed participants moved almost $1 billion to fixed income from equities during September. Most of the assets went to guaranteed investment contract/stable value funds.
Still, the financial crisis is expected to be brought home when plan participants see the devastating effects of the plummeting markets on their retirement savings.
“People are seeing — or are about to see — they lost a tremendous amount of money year to date,” said Pam Hess, director of retirement research at Hewitt, Lincolnshire, Ill. “Earlier this year, they could stomach it as the year was young, but losing 20% to 30% of their wealth in the span of the last couple of weeks has been too much to handle and translates into a lot of lost dollars.
“The volatility and market declines are making people feel things are a lot worse than they previously thought. The current financial environment is like nothing that has happened before — the impact of this is so widespread. Everybody knows somebody who has lost a job, a house or someone who has financial credit worries. No one feels safe.”
The heightened anxiety over lost retirement savings has prompted plan executives to shift into damage-control mode, putting in longer hours at the office, taking calls from worried plan participants and conducting additional meetings — all with the sole purpose of calming their plan participants.
Cindy Moehring, director of retirement planning at MGM Mirage Inc., Las Vegas, said participants in the company's $915 million 401(k) plan have been asking questions about the financial markets. She and her staff have responded by offering educational seminars on market behavior.
“There has been some movement of money into stable value funds here from equities, with some people saying they should have had a greater stable value allocation in their portfolios,” Ms. Moehring said. “Times like these serve to remind some they might have been investing too aggressively.”