COVID-19 uncertainty disturbs DC participants

Spooked by the fear and uncertainty caused by the coronavirus outbreak in the U.S. and abroad, 401(k) participants flooded record keepers with calls and website visits as well as, in some cases, near record trading as February drew to a close.

Stock-trading during the last week in February was rivaled only by a few weeks in 2008 during the economic crisis and the week after the market's reopening in 2001 following the Sept. 11 terrorist attacks, according to the latest research by Alight Solutions LLC that reviewed trading data through Feb. 28.

The record keeper's 401(k) index has been tracking the behavior of clients' participants since 1997.

Robert Austin, Alight's Charlotte, N.C.-based director of research, said the intensity of transaction activity would have been more dramatic if not for plans' extensive offering — and participants' extensive use — of target-date funds and auto features.

Still, the net trading activity on Feb. 28 was 15.8 times the average daily trading, which exceeded the previous daily trade record of 11.8 times the average daily trade recorded on Feb. 5, 2018.

On average, 0.046% of 401(k) balances were traded daily in February — the highest rate since August 2011.

Asset classes with the highest outflows during all of February were large-cap domestic equity (43%), target-date funds (27%) and midcap domestic equity (10%). Most inflows went to bond funds (47%), stable value funds (41%) and money market funds (11%).

However, the firm also noted that asset classes with the most contributions in February were target-date funds (45%), large-cap domestic equity funds (20%) and company stock (7%).

"People are still bullish," said Mr. Austin, adding that the average equity asset allocation among participants tracked by the Alight Solutions 401(k) Index was 66% in February vs. 67.7% in January.

The index covers more than 2 million participants with more than $200 billion in Alight record-kept accounts.

Several other DC industry members reported significant spikes in call-center volumes and website engagements, but they said they believed most of the action focused on seeking reassurance and checking allocations rather than making trades.

Eye-popping market gyrations of recent weeks fueled most of their concerns, record keepers, advisers and consultants said.

The S&P 500 index fell 10.95% for the two-week period ended March 6. The Bloomberg Barclays U.S. Aggregate Bond index was up 3.16% over the same period.

Participants with the most concerns are those who are approaching retirement and those who lost money in 2008, said Kelly O'Donnell, the Boston-based executive vice president and head of workplace for Edelman Financial Engines, which provides managed accounts for 1.1 million participants in more than 7,000 corporate 401(k) plans.

For Feb. 24-26, call center volume was 25% greater than average; on Feb. 27, the volume was 250% greater than average; and on Feb. 28, the number of calls was four times the normal volume.

During the first few days of the trading week that ended March 6, when stock markets lurched from big gains to big losses, the average call volume was about 2.5 times normal, she said.

"We tell them to focus on the long term and not to focus on their account balances, which will fluctuate," Ms. O'Donnell said, adding that her firm is keeping call centers open longer than usual, having extended their hours to Saturdays Feb. 29 and March 7. She said she could not quantify how many calls have led to participants' taking action.

"Some will ride it out," while others may request changes in asset allocation, she said. A "minority" have asked to move their money to 100% fixed income, which means they would leave the managed account program or they were planning to take their money out of their employer's 401(k) program, she said.

Her firm also is making calls to clients "to address their concerns and questions about the market volatility," she added. "We will continue with this client-focused process as long as needed."

Call center volume for Milliman Inc., a Seattle-based benefits consultant and record keeper, rose 15% during the last week in February vs. the previous week, Kari Jakobe, principal and DC operations leader, wrote in an email.

"Calls ranged from questions and concerns about the drop in 401(k) account balances to transactions like changing investment funds or taking a distribution," she said. "Participants in our managed accounts were more likely to hold steady than the general participant population. Of course, our message to participants is always to take a long-term perspective."

To reinforce its investing philosophy, the firm initiated a communications campaign to supplement its year-round curriculum, which outlines strategies to help weather market volatility, she added.

Retirement officials at Charles Schwab & Co. also found that amid a rush of DC participant inquiries, "people with advisers or managed accounts are staying the course," said Nathan Voris, the Richfield, Ohio-based senior managing director, strategy, for Schwab Retirement Plan Services Inc.

On Feb. 27, call volume was 12% above normal and a day later it was 40% above normal, said Mr. Voris, whose firm is a record keeper for 1.6 million participants. The rate of participants logging on to the Schwab site for those days was double the normal amount. During the last week in February, requests for advice were 20% higher than normal, with a common theme of 'What should I do? I'm worried,'" he said.

Also, during that week, trading volume among participants was "about double" that of the same period last year, he said.

Based on anecdotal observations, Mr. Voris said dramatic events "don't drive unengaged people to engage — they make engaged people act."

The calls from participants of clients of Francis Investment Counsel LLC had a sharper edge than in previous market crisis in late 2018 because "pandemic is a scary word," said Kelli B. Send, principal and senior vice president for participant services for the Brookfield, Wis.-based firm. There was an uptick in calls but she couldn't quantify them.

Asked to compare participants' recent reactions to those during the December 2018 market slump, Ms. Send said there has been "more concern this time," adding that "typical participants don't react to" slower-moving changes in the stock market.

"The mood this time is a bit more Hollywood-esque," she said, in reference to disaster films. "This time, the events are less economic and more emotional."

As it did in December 2018, Francis Investment Counsel sent messages to clients that emphasized staying diversified and reviewing risk tolerance. This time, the information was posted via several videos for mobile apps and by written communication from its director of research.

Fidelity Investments, Boston, hasn't seen extraordinary investment trading changes among participants in the DC plans for which it is a record keeper, said Megan Murphy, a vice president.

"In any period of volatility, we see an increase in the number of phone calls (to call centers) and log-ins (to the Fidelity website)," she said. "Historically, that hasn't translated into action."

She added the emergence of target-date funds — 55% of participants in Fidelity-administered plans are fully invested in them — has "helped bring peace of mind" to investors.

On average, 10% of participants in Fidelity record-kept DC plans make trades each year, but most only make one trade a year, Ms. Murphy said. She didn't quantify the trading data, website visits or call-center activity during the latest market turmoil.

Last year, 9.5% of participants made a trade vs. 10.8% in 2018 and 13.9% in 2008.

Looking at quarterly results, she said 5.2% of participants made trades during the fourth quarter of 2019 vs. 5.6% during the fourth quarter of 2018 when the S&P 500 dropped 13.5%, including 9% in December. For the fourth quarter of 2008, during the depths of the recession, 6% of participants made trades.

Consultant Steven C. Dufault said he talked to four record keepers that had average call-center volume 25% above normal forecasts on Feb. 28.

A common theme was participants "looking for reassurance that they were properly allocated," said Mr. Dufault, a senior consultant and defined contribution practice leader for DiMeo Schneider & Associates LLC, Chicago. The use of target-date funds and auto enrollment "has allowed participants generally to stay the course," he said.