Help Participants Stay On Course in Turbulent Times

The recent stock market turbulence associated with the coronavirus disease (COVID-19) has been described as a crash, a “meltdown,” and a “disaster.” Even investors who are committed to staying the course can find it hard to overcome the uncertainty of what lies ahead. Plan sponsors can help participants to stay the course by reminding them that short-term market fluctuations, even unprecedented ones, should not affect their long-term investment goals. Learn more about what plan sponsors should do to calm jittery participants and help them stay on course.

What Plan Sponsors Should Do

Plan sponsors’ actions (and inactions) can go a long way toward soothing participants’ fears of a volatile market. Here are just a few of the steps you can take to provide your plan participants with greater peace of mind that their assets are in good hands.

Maintain Fiduciary Oversight

Ensuring that investment decisions are made in plan participants’ best interests is always important, but perhaps never more important than during a market slump. As stocks decline, employees are more likely to look for someone to blame due to the loss of value of their accounts. This means that even if your retirement plan committee’s members are teleworking for the foreseeable future, they should maintain all fiduciary responsibilities and attempt to hold regular meetings. It’s even more important to document thoroughly in case of an audit or lawsuit. And just like nervous investors, retirement plan committees should stay the course and avoid making reactive decisions.

Communicate With Your Plan Advisor

Your plan advisor will be able to inform you (and your participants) about the current financial landscape. Many of your participants may have reached out with concerns, but you should avoid giving investment advice. Your advisor should already have valuable resources in place that can educate participants on the risks of attempting to time the market, how important it is to stay invested during a market downturn to avoid locking in losses, and how investors have fared by maintaining their asset allocations through other historical downturns.

Communicate With Participants

In these volatile times, an open line of communication with your plan participants can help address their fears. It’s important to pass along any information or resources available through your plan advisor or recordkeeper. Point them to the managed account solution, if one is offered, to have an objective financial professional review their objectives and investment plans.  Plan sponsors can reduce the stress associated with stock market plunges by maintaining open communication with plan participants.

What to Advise Plan Participants

Plan sponsors can tailor their conversations with individual plan participants to their needs and concerns, but there are a few points that are important to highlight.

Don’t Stop Contributing

When markets drop, it can be tempting to take one’s proverbial ball and go home—or at least dial down one’s contributions. But more than half of the top 20 single-day Dow Jones Industrial Average (DJIA) gains have occurred within two weeks of one of the DJIA’s top 20 single-day losses. Staying the course can ensure plan participants are “in the game” for these major gains. Remind them that as markets recover, so will their retirement savings.

Don’t Look at Your Balances!

Though it can be tempting to put a number on one’s stock losses, looking at balances is likely to cause anxiety and challenge the resolve to stay invested for the long term. Participants may be tempted to “quit while they’re ahead” and cash out before the balance can decline further. Advise your plan participants to commit to looking at their accounts quarterly, if that, during turbulent times.

Avoid Taking out Loans or Hardship Withdrawals

Although 401(k) and 403(b) loans can be a viable option for plan participants who need a short-term bridge loan to handle an unexpected expense, taking out these loans during a time of economic volatility can be especially risky. If an employee with an outstanding 401(k) and 403(b) loan is fired or laid off, this loan becomes immediately due and payable—something that’s hard to manage for someone who has just lost their income.

Hardship withdrawals, on the other hand, hit participants with a 10 percent penalty if they’re under age 59.5 when the withdrawal is made. Withdrawing at (or near) the market bottom and paying taxes and penalties can mean walking away with a small fraction of one’s initial investment.

Remember, Volatile Markets Aren’t Forever

Remind participants that ups and downs are par for the course. By continuing to invest while stock prices are down, plan participants can purchase more shares for their money. Once the market recovers and the major up-and-down swings modulate, these shares are likely to increase in value. Investors can maintain calm by focusing on the things they can control, like their asset allocation and contribution level, instead of worrying about factors outside their control.

Let PlanPILOT Help

PlanPILOT specializes in helping plan sponsors minimize the risk of bad outcomes for their employees. From employee education to investment oversight, we deliver comprehensive solutions for retirement plans in times of market volatility. Call us today at (312) 973-4911 or email info@planpilot.com to see how we can help you and your participants protect their retirement plans.

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