In the midst of the financial crisis, defined contribution plan participants fled the stock market and remained too shellshocked to get back in when equity prices turned around.
The effects of the market downturn shrank average defined contribution equity allocations to 41.1% of total assets in 2009 from 48.1% in 2008, according to a forthcoming report from Greenwich Associates, Stamford, Conn. Allocations to stable-value funds and guaranteed investment contracts jumped to 23.8% of assets from 15%; money market allocations increased to 3.7% from 2.5%; and allocations to international stocks dipped to 7.3% from 9.7%.
“Many individuals panicked,” Greenwich Associates analyst Chris McNickle said in an interview. “They sought to protect their assets so when the recovery came, they didn't benefit, or benefit fully.”
That, combined with the possible elimination of a company contribution, has left many participants in a tough spot.
“There's a hole there that's going to have to be filled in,” Mr. McNickle said. “Participants with a reasonable time horizon (before retirement) have to think about strategy — contributions and asset allocation. Lamentably, people who are ready to retire are going to find an unhappy experience.”