Participants Readying for Changing Account Makeup

October 31, 2001 ( - Plan sponsors need to get ready for participants knocking on their door come January, looking for advice on their 401(k) accounts after another dismal year of returns.

That is at least the forecast contained in this year’s WorkPlace Report on Retirement Planning from Cigna Retirement Plan Services. In it, 47% of participants surveyed said they will make changes to their retirement account if their balance will be lower at the end of 2001 than it was in January, a likely scenario. Plan sponsors will need to reexamine the quality of their investment education programs if their participants are to make informed decisions.

Also, the terrorist attacks on New York and Washington influenced the way many participants view their retirement plans. Ian Glew, senior vice president, retirement services division at Cigna said that while the events affected the balances of many plans, most participants viewed the tragedy as an opportunity to reevaluate their goals.


“Some people were questioning whether they are putting enough money away for retirement,” he said. “Another group [of participants] realized that they were taking more risk into their portfolios than they needed or wanted to, while another group was comfortable with their current plan. But there was also a group out there that realized that they would need more education to make changes to their plans.”

Making any kind of change would require the average participant to consult with the HR department at his company who would most likely direct him to sources provided by the company’s provider. While this equation sounds straightforward, Cigna’s survey found that 40% of its sponsor respondents viewed education as their biggest challenge. It also found that 18% of sponsors heavily outsourced many of its plan education responsibilities and another 37% did a significant amount of outsourcing.

Glew continued that this is a good time for sponsors to step up their programs. “Given the current economic circumstances retirement education is more important than ever before; employees need it to make better decisions about their goals and employers need it to retract and retain talent,” he said. “It’s clear from the survey that sponsors are aware of the need to give investment education and advice to participants, but it is also clear that to date they have not been effective in doing this.”

Legal Impact

Glew added that some of the changes would come about as increased contributions to plans under the new pension bill, others as changes in asset allocation. Some participants may even decide to cash out of their plans, he speculated. “We may see a lot of cashing out but we think participants should be aware that cashing out will really eat into their retirement goals for the long term.”

“Not everyone has lost money,” Glew continued. “Some people have invested conservatively with a high amount of their assets in fixed income [for example]. The participants who experienced the highest losses were those who tended to invest aggressively in a limited number of investment classes.”

Still, Glew said any changes participants make would be gradual rather than drastic. “Come January, I think we’re going to see a gradual change toward better diversification, we’re going to see Congress responding by giving up a retirement security advice bill and we’re going to see employers and providers improving their education methods.”

See also: HR Departments Unprepared to Deal with the Turbulent Economy