From alarm to outright fear, a turbulent stock market can generate concern among participants in 401(k) and other defined contribution retirement plans. This creates a challenge for HR professionals, who are faced with meeting their responsibilities as plan fiduciaries while attempting to calm plan participants who might otherwise make ill-conceived and fear-based decisions—to the detriment of their future financial security. Fortunately, with proper education and guidance, the unease felt by plan participants can be settled.
Maintain a Consistent Process
As a retirement plan sponsor, an employer has the responsibility to act prudently. Unfailing security is imperative to the design, selection and monitoring of plan investments, particularly during a weak economy when some employees may be more concerned about the amount in their weekly paycheck and less about their financial future.
Some employees have a keen grasp of the importance of a 401(k) plan as an investment tool, but others may have opted out of participation, perhaps due in part to an employer's failure to communicate the true worth of its plan. HR professionals should provide frequent communication about the value of a company’s plan to employees, particularly when the stock market is in free-fall one day and ascending by triple numbers the next. In such an environment, regular, targeted communications can maintain and even raise participation.
To be effective, it's essential for HR professionals to know themselves why their company offers its particular retirement plan and the plan's cost. In addition, knowledge of what the competition is offering may help prevent potential employee poaching from rival companies.
If employees are selecting among a variety of investment choices, it's important to provide information about investing in general. This may be of particular importance to younger employees who have never contributed to a retirement fund and are not fully aware of the impact a 401(k) will have over their working lives, or that a long-term, disciplined investment approach—and a portfolio that provides broad, global diversification—are proven factors in influencing durable returns.
To that end, employees can be kept informed, and plan participation increased, by offering in-house classes about investing or inviting guest speakers for Q&A sessions about the stock and bond markets and other fundamentals. This is not to imply that HR should act as a financial advisor, but rather as a conduit for information to allow employees to make sound choices.
Role of Retirement Planning Firms
An unstable stock market combined with a hobbled economy creates an opportunity for companies to reach out to employees by making expert resources available to them, even at a moment’s notice, while in addition providing proactive educational opportunities—services that can be provided through a retirement planning firm. For example, a calendar-year schedule of events focusing on the needs of the plan’s participants may include formal and informal workshops, with one-on-one office meetings and “lunch and learn” group sessions.
Consistent input and visibility from the investment advisor can provide plan fiduciaries with necessary support and access to essential information, which can then be passed on to employee participants, allowing them to realize the full potential of their retirement account.
HR professionals whose employees know their questions will be answered thoroughly and in a timely fashion will have an easier job of retaining high plan enrollment.
Meeting Fee Disclosure Requirements
The U.S. Department of Labor's new participant fee disclosures, effective beginning in May 2012, require that plans plainly detail all fees and expenses on a quarterly basis. In addition, performance information typically contained on fund fact sheets must be supplied, including investment objectives, investment returns, and risk prior to enrolling in a plan. The information is to be conveyed using a chart that compares the investment options’ fees, past performance, benchmark comparisons and risk levels.
The expertise of a retirement planning firm can be of value in clarifying for participants' the meaning of these new disclosures and ensuring that they don't become overwhelmed by the data.
Change is a constant, but by ensuring participants are receiving proper education about their retirement benefits, HR can meet the challenge and deter employee fears.
Robert Auditore is a founding principal of Bay Colony Partners and managing director of the firm’s retirement practice. Mr. Auditore’s experience within the financial services industry spans more than 20 years. In 2010, he was recognized by his peers as one of the Top 300 Influential Advisors.
Retirement Preparedness: Adapting to the ‘New Normal,’ SHRM Online Benefits Discipline, September 2011
‘Staying the Course’ Rewards 401(k) Investors, SHRM Online Benefits Discipline, September 2011
Action Can Reduce Fiduciary Risk When Stock Markets Swoon, SHRM Online Benefits Discipline, August 2011
DOL Aligns 2012 Deadlines for Retirement Plan Fee Disclosures, SHRM Online Benefits Discipline, August 2011
Fee Disclosure Rule Puts Spotlight on Investment Committees, SHRM Online Benefits Discipline, December 2010
Retirement Education: Craft Winning Programs, SHRM Online Benefits Discipline, September 2004
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