SURVEY SAYS: Has the Market Moved You (Yet)?

October 9, 2008 (PLANSPONSOR.com) - With all the tumult in the markets - and the prospects of those September 30 statements due to arrive any day now, this week I asked readers what they thought all this will mean for retirement plans, and what readers are doing about it.

More than half ( 51% ) of this week’s respondents believed it would result in reductions in retirement savings deferrals, and nearly as many thought it portended a greater participant interest in defined benefit plans ( 43% ), and a lessened interest in defined contribution designs ( 41% ).    About one in three ( 35% ) thought it would lead to shifts in asset allocation.   Small minorities saw upticks in interest in defined contribution designs – either by participants or plan sponsors – while 16% thought it would diminish interest in defined benefit plans.  

One in ten saw no real change as a result – while one-in-eight predicted a reduction in retirement plan matches.

I asked readers about the changes in their personal portfolios.   More than three-quarters ( 77% ) said they had made no changes in the investment of their new contributions, and an even larger 81% had made no changes in their deferral amounts in the past two weeks ( 11% said “not yet”).   A comparable number ( 70% ) said they had not made any changes to their current investments, though 16% caveated that response with a “yet.”

Several readers took advantage of the opportunity to fault the dismissal of stable value options as a qualified default investment alternative (QDIA).   One reader noted, “…the default options advocated by the Pension Protection Act all included equity components subject to downturns during market volatility that would burn employees near retirement as well as new contributors put in plans as part of auto enrollment. Well, the volatile markets happened and a lot of employees have been hurt, because …the mutual fund lobbyists (including PlanSponsor 1 ) won the day with the DoL and PPA when it came to Qualified Default Investment Alternatives.”


1 Editor’s Note  I am TOTALLY unaware of any lobbying efforts for or against any default option by anyone at PLANSPONSOR.   Indeed, I actually wrote a column in June 2007 supporting the ability of plan sponsors to choose stable value as a default (see  IMHO: Other People’s Money).

Bearing in mind that the vast majority of respondent situations indicated patience and inertia (perhaps hope), there were plenty of nervous comments as well:

    

"Please tell me those reassuring tales of how all of our losses will be recovered and how all of our purchases at these bargain-basement prices will make us all sorts of money later... Assuming we all live long enough to see it!"

"Those scratch tickets are looking pretty good as a retirement strategy -- at least I only lose $1.00 at a time."

"I wish the media would quit adding fuel to the fire."

"I moved my money the Friday before the market fell on Monday a couple of weeks ago. While I am in it for the long term, and I will definitely re-invest in stocks, and probably pretty soon, I didn't enjoy the ride down in 2001, and I simply wanted to avoid it this time. Unfortunately, many of our participants moved to money market after a knee-jerk reaction to Monday's drop - most on Tuesday and Wednesday of last week. Money Market investments within our Plan have increased from 6.6% on 6/30/08 to 15% today."

"You gotta love dollar cost averaging! One of the few bright spots in an otherwise bleak month."

"With at least 15 years before I will retirement, I just don't look at my account. Why depress myself now - when now does not matter for retirement purposes?"

"I would like to see some Public Service Announcements about investing for the long term. Immediate help would be some good national education on saving and investing."

"I have a headache."

"Upside: Employers don't need to worry so much about the Boomer "brain drain" over the next 5-15 years. The 50-somethings are not going to be able to retire."

"If the current situation continues beyond 2-3 months, we'll all have much more to worry about than our 401k portfolios."

"When a store has a liquidation sale everyone runs to get great deals. When stocks on Wall Street go on sale everyone panics and runs in the opposite direction."

"To all the "have you" questions my response is; If you've ever white-water rafted you learn quickly that it doesn't make sense to try and change boats in the middle of a rapid. That being said, however, falling out of the boat is an altogether different matter."

"I'm disappointed to see that my 2040 lifecycle fund is down almost 25% in the past three months. So much for diversification..."

But this survey's Editor's Choice goes to the reader who, asked about portfolio changes said that they "Can't - we're in a blackout from plan conversion....talk about timing..."

Thanks to everyone who participated in our survey!

Please tell me those reassuring tales of how all of our losses will be recovered and how all of our purchases at these bargain-basement prices will make us all sorts of money later... Assuming we all live long enough to see it!
I wish the media would quit adding fuel to the fire. In DB plans, the employer takes the risk, so participants don't have to worry too much. In DC plans, hopefully the participant has allocated their investments in accordance with their risk tolerance.
Although my 401(k) is down 12% since the beginning of the year, I know this is long term and right now, I'm buying low.
My phone is very quiet. Most employees are just waiting it out. Most changed around the first of the year, if they were going to change.
I'm curious to see how Washington reacts to this economic crisis and how it affects our industry. Obama wants to offer the fed govt's health care plan to everyone, why not offer the same gov't pension plan to everyone as well! It's only money, we can print more... to buy up all of the bad debt!
Those scratch tickets are looking pretty good as a retirement strategy -- at least I only lose $1.00 at a time.
I'm spouting off a bit here but I'm assuming whatever "executive compensation limitations" are pending are merely short-term and temporarily placating. The rich getting richer and the poor getting poorer is definitely true today but, it appears, the middle class is getting poorer at a logarithmic rate. Compensation packages eliminating health care, pensions, and incentive compensation for "average" workers while companies rob pension plans and shareholder equity to ensure the golden parachutes and on-going health benefits for the rich, is quite irksome. Considering Congress, the Executive Branch, and the Supreme Court are made up primarily of these same "old boys club" individuals, I wonder if the point will ever come when the "average" person is treated fairly. I fear the true answer to that question.
I am doing my best to "walk the walk" and "practice what I preach" but damn, it's getting harder and harder to do. I'm having more and more difficulty encouraging participants to "stay the course" given the incredible speed of this downward slide. This is the slipperiest damn slope I can recall. And, we're getting ready to launch a National Save for Retirement Week campaign in a week and a half. Any thoughts on how well received that's going to be?????
I sure hope we hit bottom soon. It's going to take years to get back to where we were last September.
I am thankful that I am a younger worker who has time to stay the course and focus on long term. But I see a lot of colleagues and friends who are close to retirement who are now having to make the tough decision to postpone it because they've lost so much of their savings. They are going to be the hardest hit demographic.
My personal retirement will need to be postponed at least a year or more due to the massive drop in the financial markets.
Companies will have less cash to put into matches. Predict that more matches will be deferred, except for safe harbor plans and companies doing well.
As warned by the SVIA and several stable value providers, the default options advocated by the Pension Protection Act all included equity components subject to downturns during market volatility that would burn employees near retirement as well as new contributors put in plans as part of auto enrollment. Well, the volatile markets happened and a lot of employees have been hurt, because Fidelity and the mutual fund lobbyists (including PlanSponsor) won the day with the DoL and PPA when it came to Qualified Default Investment Alternatives. It would have been even worse if you also won your battle to prevent plans from being able to grandfather Stable Value with existing participants. I hope the DoL and others now see the error of their ways.
I moved my money the Friday before the market fell on Monday a couple of weeks ago. While I am in it for the long term, and I will definitely re-invest in stocks, and probably pretty soon, I didn't enjoy the ride down in 2001, and I simply wanted to avoid it this time. Unfortunately, many of our participants moved to money market after a knee-jerk reaction to Monday's drop - most on Tuesday and Wednesday of last week. Money Market investments within our Plan have increased from 6.6% on 6/30/08 to 15% today.
You gotta love dollar cost averaging! One of the few bright spots in an otherwise bleak month.
Welcome to the new USSR - United States Socialist Republic.
There has been an increase in fund transfers from stock funds to the stabel value fund, but most of our participants seem to be staying put. Inertia may be a good thing here.
I hope the government doesn't solve this problem as well. That would be the final nail in our coffin to having any hope of holding on to even a little money for retirement.
For most people, retirement investing is a long-term project. Why should I make any changes in the last 2 weeks if retirement is a long way off? This is just another excellent buying opportunity for those with the appropriate long-term focus.
Maybe people will start to realize that relying on a defined contribution plan as a primary vehicle for retirement savings is next to insanity and that the people who have been advocating this are motivated by self-interest and not a rational policy to provide people with retirement security.
I moved my 401(k) money into a Guaranteed Fund that pays 7.5% earlier this year; although I'm in my mid-thirties, I am so glad I made the leap.
With at least 15 years before I will retirement, I just don't look at my account. Why depress myself now - when now does not matter for retirement purposes?
Participants either don't want to be invested in anything or they want us to buy them gold within their DC plans!
I would like to see some Public Service Announcements about investing for the long term. Immediate help would be some good national education on saving and investing.
My wife and I have worked in the retirement plan industry for over 20 years. When the 410(k)s started taking off, we could see they weren't a good idea. We've been putting money in since they were offered by our employers but we never could and still can't put in anything near the maximum. We didn't have large balances at the beginning of the 90's, so we didn't have huge gains by the 2000-2001 crash. We were just recovering from that and now we're knocked back to where we were a couple of years ago. We didn't have the chance to save a lot of money when we were younger and that has only been touted recently as being important but I doubt most of the young workers today can do it either. Neither of us are covered by any type of defined benefit plan and although we still have a number of years to retirement(?), we can only do what we can and hope it all works out in the end. There are no guarantees and that's not very comforting.
The reaction of the typical investor, to get out now that the market has gone down and to chase returns after the market recovers, is the reason that DC plans will NEVER be an adequate vehicle to fund retirement benefits.
If the current situation continues beyond 2-3 months, we'll all have much more to worry about than our 401k portfoliios
so far less than 1% of our participants have stopped participating in the plan. 1% of participants reduced the amount that they were deferring into the plan. I suspect that inertia/market paralysis has a lot to do with it, but we will keep watching.
I really do believe in the market, and we try very hard to educate our plan sponsors so that they can respond to participant concerns. Surprisingly, many participants seem to be listening. Of course, the majority of participants in our plans are very young, so they have a long time horizon on their investments.
Same all adage - Speculation in investments is based on two feelings, fear and greed. When speculators are showing their fear, it's time to buy...when they are showing their greed, it's time to sell. I'm slowly buying as the the fear exhibits itself...not as much as Warren Buffet, but hopefully my little "nickel" will serve me well in my future retirement. Of course, if you haven't saved, and kept some assets in cash (contrary to what the experts say), you can't buy or sell.
I have a headache.
I haven't made any changes yet but I am petrified. I want to beleive that this will all work out and I have plenty of time to recoup my losses but the nagging fear of another depression or complete economic collapse is hard to completely ignore.
There needs to be accountability for this situation. You're a history buff, Nevin. Are you also wondering why it is that all through history, we have never been able to learn the lessons presented to us? There have been cash crises, gas shortages, market crashes, bailouts, yet we repeat and repeat the mistakes caused by greed and ego. They are incredibly destructive forces. Overcoming ego is a very hard thing to do, but the cost of not rising above greed and ego is so much harder to bear. And the worst part, the high fliers are walking away relatively unscathed.
Read an article today that AIG took their executives on a retreat to St. Regis in Los Angeles, THIS IS AFTER the bailout. We're the fools here. What's it going to take before the government opens their eyes and realize that the fat cat just gets fatter? No one really cares about the middle/lower income folks. It's all about the money. I think it's disgraceful and it's making me rethink my career in the insurance industry. I'm tired of the lies, deceit and the blatant disregard for human beings who are the victims of the greed of the big corporations.
When a store has a liquidation sale everyone runs to get great deals. When stocks on Wall Street go on sale everyone panics and runs in the opposite direction.
Congress needs to be real! "Today's hearing is an important first step in examining how the ups and downs of the financial markets impact workers' retirement security." We all know what the impact is, we don't need to hold expensive hearings for that...let's fix the problems. As far as the 5% in GRAs...is that in place of our Social Security tax or addition to?
To all the "have you" questions my response is; If you've ever white-water rafted you learn quickly that it doesn't make sense to try and change boats in the middle of a rapid. That being said, however, falling out of the boat is an altogether different matter.
I'm disappointed to see that my 2040 lifecycle fund is down almost 25% in the past three months. So much for diversification...

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