How employers should address employees’ 401(k) concerns
The stock market’s steep slide as a result of the coronavirus pandemic is causing wariness for many with money tied up in the market—including millions of employees with employer-sponsored 401(k)s. The market’s tumble is dropping 401(k) balances at a staggering rate, causing panic and uncertainty among employees—and creating a mess employers may be left helping to sort out.
“Market volatility is driving a lot of stress and a lot of concerns for individual participants and 401(k) plans. And HR departments of companies who offer 401(k) plans are fielding a lot of questions: What’s going on with my investments? What should I do about them?” says Edward Gottfried, group product manager for Betterment for Business, a provider that works with 500 employer clients.
Employers are in a unique position to offer guidance and leadership during this volatile time, but they are often unprepared for it, he says, adding that HR professionals need to step up and provide messaging to employees to keep them updated—and calm—about their fluctuating retirement accounts.
Gottfried spoke to HRE about what employers should do now, what employees need to know about their contributions and why patience is key.
HRE: What should employers tell employees who are understandably worried and concerned about the drops and the balances they’re seeing? What is some of the language and advice they should be sharing now?
Gottfried: The No. 1 thing employers should be telling their employees is to remember the 401(k) is a long-term investment and it’s meant for retirement. The best approach to take for long-term investing is to resist taking any immediate action, and certainly to resist taking drastic action. One thing we’ve been telling people at Betterment is, if you do feel compelled to change how your investments are situated—whether it’s a 401(k) or it’s set up as a safety net—before you make that investment allocation change, think about making a slightly smaller change. If you were thinking you wanted to move to fully bonds, think about moving halfway in between where you are in your investment portfolio. Preaching patience and a slightly more conservative approach is something else employers should consider.
HRE: Understandable advice, but what about employees who may react to this volatility by saying they want to decrease their contributions—or stop contributing to their 401(k) altogether? What should employers tell them?
Gottfried: We absolutely believe it’s always important to continue to contribute to your 401(k). We think it’s good guidance for employers to tell [workers] that any savings they can do today will have an outsize benefit, and it’s important [employees] exercise their option to contribute to this employer plan. One thing we talk about a lot is [employees should] save as much as [they] can comfortably allow, and even push that a little bit. As your level of comfort shifts, it can be necessary or appropriate to shift [contributions] down a little bit, but it’s really important to still contribute, even if it’s at a slightly lower rate than it might have been at other times.
But again, what an employer can do is provide a clear and level-headed instruction on what market volatility means and what it shouldn’t. And one of the things it means is your 401(k) savings behavior shouldn’t be dictated by how market performance is going. You’re in retirement savings for the long haul. It’s important to keep that long-term view in mind, even in a moment where market performance is not what you hoped. And not to make rash decisions as a result of that. We see success with employers that provide that kind of clear and reassuring advice.
HRE: Why should employers try to calm some of these fears right now? Why should the onus be on them to reach out to employees about their accounts?
Gottfried: It’s important because your employees will look to you as the person who is providing them with this financial benefit and guidance about what will happen there—the same way that they might look to you if they’re experiencing some type of health concern to give information about what their health insurance package might be able to provide through that hard moment.
It’s also important that employers think about their benefits package as part of the overall compensation model for their employees, and the 401(k) is an essential element to that. It’s important the employer feels as though they are armed with the information they need to responsibly provide guidance to their employees through challenging times.
HRE: On the flip side, how concerned are employers right now? What are you hearing from them?
Gottfried: Most employers [we work with] are very much about their employees and really care about employees’ financial health and wellbeing. I’m seeing what I would consider appropriate concern. They want to be sure [workers] are set up for success, and it can be challenging to see that, across the board, balances are dipping because market performance is lower than expected. Our employers are looking to us to see what else they can be doing.
HRE: What about companies’ retirement providers? Where does that help and partnership come in?
Gottfried: When you select a 401(k) provider, you should be thinking about the fiduciary capabilities they’re offering for your company. Now’s the moment they can demonstrate how they add that value to your employees by acting as a clear- and level-headed fiduciary in a moment of volatility.
One of the things we are making sure we provide employees and employers with is information about how quickly gains have been recovered in previous downturns. We can’t tell you how long this is going to last, but we can tell you that, over time, markets go up. It’s important to preach patience and make sure employers are comfortable with that message and feel comfortable that it’s coming from someone taking on that fiduciary role for them.
HRE: What’s a final piece of advice—the biggest takeaway you want employees to know right now about their 401(k)?
Gottfried: We know that this is a concerning time—market volatility is always hard to see. But, again, what we preach is patience. It’s important to feel confident about the plan you had in place before the market began to be as volatile as it is right now, and to feel confident that the plan was sensible at the time you set it up, and that nothing has changed about it. And as much you possibly can, avoid dipping into your retirement savings, out of immediate concern or for immediate needs. Consider retirement savings sacrosanct—[they] shouldn’t be touched unless exceptional circumstances prevail.