Coronavirus pandemic highlights urgency for strong retirement planning
As the coronavirus creates mayhem on Wall Street and in the bond and equity markets, many companies are bracing themselves for fallout from investment volatility and risk.
The market volatility also raises a concern for retirement plan sponsors and HR professionals. Employees, particularly those who are nearing retirement, are raising questions about their investments and expressing concern over plan stability in such an unpredictable market, says Tara Mashack-Behney, president of Conrad Siegel, a mid-Atlantic investment and retirement plan consulting firm.
“Most employees don't have a great investment background, and it's human nature to let emotions take over,” Mashack-Behney says. “Those emotions might lead to selling out in the market totally, which might have a detrimental impact on their retirement savings. Employers want to make sure that employees have somebody to talk to and educate them, to take them down from the ledge and make sure that they're not acting irrationally but making good decisions.”
Mashack-Behney shared some best practices for how employers can help their employees navigate the market effects of the virus, and how to prepare for the impact on retirement plans.
Is the current market volatility a cause for concern for employers when looking at employees’ retirement plans?
The stock market is down substantially, so if [an employee] has any exposure to equities, they are probably looking at some losses on their statements. The magnitude of that loss isn't really driven by age, it's driven by their allocation, like how much they have in the stock market, what percent of their portfolio is invested there. I'm sure [employers] are worried because if you think back to 2008 and 2009 when the market went down, there were a lot of folks who were very close to retirement. And they were then saying “I can't retire in a year or two, I'm going to have to work longer.” Employers want to see that participants can retire when they want to retire so they continue to get some new folks on board.
One of my colleagues took a call last week from a participant in a plan that we're involved with, and the woman was 55 years old. She was starting to think about retirement, and she was spooked a little bit by the market. She was surprised to discover that she was invested in one fund that was 100% in equities, so she had no diversification. So I'm sure employers are hoping that their employees aren't in that same boat and that they have an appropriate asset allocation for their age, and that they are taking advantage of the tools and the education that their employer provides. I'm sure there are employees that have been negatively affected, but there's a big difference in your amount of loss if you only had 20 or 30% in the stock market versus if you had 100% in the stock market.
Why does the coronavirus pandemic increase the urgency of talking to employees about their retirement plans?
It's a topic that's important all the time, but the reason there might be a little bit more urgency felt now is because of the dramatic market decline. When the markets are going up, employers still want employees to be invested appropriately and have the right mix or allocation based on their age and situation. When the market is going up these things are less urgent, so we tend to put some of those things off. But now it's really important for employees to know where they’re at, and it's also really important to get that education so that they don't make rash decisions.
If you have an employee who’s spooked and upset, and want to sell out the market totally, that can have a long-term impact on their investments as they may have lost a lot. How are they going to get that back if they're not invested in stocks? And if they think about trying to get back into the market at some point, when are they going to do that? Trying to figure out market timing is a very dangerous game because they're making guesses. A lot of times, a market has its largest rebound right after hitting the bottom. So if you have an employee who got spooked and sold out, when they see the market go down, they're probably going to be hesitant to get back in. Unfortunately, by doing that they're probably going to miss out on a lot of the market upswing. So right now, because the market has declined, employers want to make sure that their employees are reacting appropriately and making good decisions.
How can employers best prepare employees to navigate the current market effects of the coronavirus?
If employers don't have their vendors coming on site to talk to their employees, because they might be in a work-from-home situation at this point, participants should know who to reach out to if they have questions, so employers need to make sure that the vendors are making themselves available for that. If employers want to make a change to their investment lineup, that takes months to implement and it's a lengthy process, but making sure participants have somebody to talk to is a pretty quick fix.
It’s good to have someone who can put things into perspective for employees. We had another client calling who saw that the market was down, and was worried they had lost 20% of their money. We then clarified that the client only had 30% in equities, and that 70% was in bonds, so they're still earning return. That meant the client was down only 5%. The average employer doesn't have a lot of investment background, so it's good to have them have someone to talk to who can help fill in the blanks for them.