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Benefits Business

Steady as she goes

Holding steady and maintaining calm in a volatile investment market

By Len Strazewski

It’s been a rough week on Wall Street and everyone around the office knows it. They check the balances of their defined contribution retirement plans and groan as they see another few percentage points of their savings disappear.

You’ve seen it in your own offices. The experience has become universal in virtually all employer-defined contribution retirement plans: 401(k) plans for most private employers, 403(b) plans for educational institutions and 457 deferred compensation plans for state and local governments.

Toward the end of 2008, the Dow Jones had dropped to its lowest level in five years—about half of its peak at 14,000—and the balances of defined contribution plans, which had seemed so attractive, had lost their luster. Depending upon the level of equities in the investment mix, balances had dropped 30% to 40% from previous highs.

You’ve also taken calls from your employer clients, seeking your guidance, as the designer and administrator of those plans, about what to tell their disappointed, angry and sometimes frightened employees.

Times are tough all over, “but this can be a terrific opportunity for employee benefits professionals to step up and assist their clients in doing what needs to be done—which is to provide a calming influence on their worried employees,” says William S. Harmon, vice president for the corporate market for Great-West Retirement Services in Greenwood Village, Colorado.

Great-West Retirement Services is a division of Great-West Life & Annuity Insurance Co., which administers more than 20,000 defined contribution plans for 3.9 million participants.

Panic is the real enemy, says Harmon. “Agents and brokers are seen as trusted sources of guidance by many employers, and it is natural for them to turn to them for help. No one can change the volatility of the markets, but advisors can direct their clients to meet the problems with calm and discipline.”

Start with your clients’ employee benefits and retirement committee that sets policy and makes decisions about plan design and employee communication. Harmon suggests: “Review the investment policy statement and make sure the plan is following the policy set by the committee.”

Employees have just received what is likely to be the ugliest retirement plan statement in their lives. “You will need to be prepared to defend the inevitable grievances by being able to demonstrate adherence to the plan policies,” he says.

“This is the time to be disciplined, to develop a sensible strategy and maintain it during the crisis,” Harmon continues. “If an employer and its trusted advisors have designed the plan correctly and chosen a fair and balanced strategy, the plan will weather the downturn.”

However, employees need to share the discipline. Because most defined contribution plans allow participants a wide range of investment choices, participants need to be prepared to make prudent decisions. Right now, for most participants that means holding on to their de-valued equities for an inevitable rebound, Harmon advises.

Employers will need to prepare to communicate directly with their employees about their decisions, and their employee benefit plans advisors may be on point to help shape their messages, Harmon says.

“Employers need to be a calming influence on plan participants and communicate that they are in it for the long term. An employee in his or her 40s has another 20 years or so before retirement and will see the market rise again. I would hate to see people pulling out of the market and just taking a loss on their retirement investments.”

Harmon recommends that employee benefits advisors suggest a special round of employee meetings to address their concerns about their retirement plans and their future values.

The meetings should address how the plan has performed against peer groups of investments. If the investment committee has chosen wisely among options, many funds may have out-performed the indices. That would be consoling news in a time of all-bad news, he says.

“Most retirement plan administrators can provide fund analytics that reflect how well the choices are weathering the economic downturn and what the fund managers are doing to maintain value. The administrators may also be prepared to talk about new fund options that may provide more security going forward.”

Kevin Crain agrees that more employee meetings are called for during turbulent times. He is managing director of institutional client relationships at Merrill Lynch Retirement Group in Pennington, New Jersey, which provides investment and administrative services to about 2,000 employers.

Crain points out that the end-of-the year open enrollment period for health care also provides an opportunity to talk about retirement benefits and their value as part of the overall benefit package.

“We have seen wonderful results in communicating to employees the comprehensive value of their benefits during this period and getting employees to enroll in the plan for personal contributions,” he says.

However, he agrees that the economic downturn in late 2008 and the resulting equity market crash calls for special attention. “401(k) plans are the great democracy. Participants are free to make choices and earn the reward or their consequences.”

Plan participants are at risk for more than just the fluctuations in value due to market volatility. They also may be at risk for their own poor decisions in this environment.

“In times like these, we see three to four times the numbers of calls from plan participants ordering fund transfers from equities into other, more stable investments. For most of these individuals, this is exactly the wrong time to transfer out of equities. They are just guaranteeing their losses.”

Employees very near to retirement may need to secure their asset values against their need to retire before a market upturn, but younger employees should stay the course and anticipate that a market rebound will bring higher values sooner rather than later, he says.

“Employees in their 20s should actually see this period as an opportunity to buy in at bargain rates. They will see two or three or more cycles like this in their career and are most likely to achieve very solid long-term results, “ Crain emphasizes.

He says that employers and their agent/broker advisors need to communicate this long-term view toward investments, as well as the overall safety of assets in employee meetings and communications. While the values may be diminished, the assets themselves remain secure, ready for the inevitable rebound.

“Employers should also note the continuation of any matching program that adds value to participants’ continued contribution and will increase overall value as the market returns to higher level,” he says.

Don’t dodge questions about market volatility, he adds. Explain how the market performs over time and the range of options available to plan participants. Some may need to offset future volatility with more fixed income investments as they move toward retirement.

Crain also recommends communication from the top, such as a letter from the chief executive officer assuring employees that the company continues to support the retirement plan with careful management, continued contributions and a commitment to the future security of employees.

Do all of this and then, like everyone else, hope for the best.


“No one can change the volatility of the markets, but advisors can direct their clients to meet the problems with calm and discipline.”

—William S. Harmon
Vice President for the
corporate market
Great-West Retirement Services















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