401(k) Investors Show Steady Hand, Stay In Stocks
May 08 2009 - 11:54AM
Dow Jones News
Workers have largely continued to contribute to their 401(k)
plans despite the fact that some companies have stopped matching
contributions, and investors are still allocating good chunks of
their savings to equities, executives from some of the country's
largest mutual-fund companies said.
Leaders in retirement savings at Fidelity Investments, T. Rowe
Price Group Inc. (TROW), Vanguard Group and Principal Financial
Group Inc. (PFG) discussed retirement trends at the Investment
Company Institute's annual meeting in Washington Friday.
"We have not seen any increase in the opt-out percentages due to
matches being stopped," said Scott David, president of workplace
investing at Fidelity Investments. In addition, hardship
withdrawals and loans from 401(k) plans are down from 2008, David
said.
Daniel Houston, president of retirement and investor services at
Principal Financial Group, and Cynthia Egan, president of T. Rowe
Price Retirement Plan Services Inc., said their companies were
witnessing similar behavior.
Employee and employer behavior across Fidelity's 401(k) business
has been largely steady in the first quarter, and a good portion of
retirement contributions were being allocated to equity markets,
David said. "Participant behavior is not really tracking with the
headlines, and what we are seeing in the press," he said.
During times of extreme volatility in the market, queries from
investors have increased, but that hasn't resulted in assets being
withdrawn from 401(k) plans, David said. On one recent volatile
day, for example, Fidelity handled 1.2 million telephone and
Internet queries, about double the normal volume, but there wasn't
a commensurate increase in transactions, he said. By and large,
investors were checking their accounts and seeking reassurance.
On Oct. 10, when the Dow Jones Industrial Average experienced a
steep decline, 2.4 million investors contacted Fidelity, David
said. There's "a tremendous need for reassurance and guidance" that
their financial products will serve them well, he said.
Houston said many 401(k) investors are "more diversified than
you might think," with assets in accounts other than their 401(k)
plans.
But Egan said the majority of 401(k) participants are savers,
not investors, "and we need to work with them as savers."
Two-thirds to three-fourths of participants aren't actively engaged
in thinking about their investments and taking action with their
investments, she said. That makes target-date funds and some income
options important, Egan said. (A target-date fund is a portfolio of
cash, bonds and stocks that automatically resets the asset mix in
its portfolio according to a selected time frame that is
appropriate for a particular investor.)
Many investors with $300,000 or $400,000 in their plans think
they have accumulated a sufficient nest egg and don't understand
how much that will be able to provide in retirement income, she
said.
And Egan noted that, while auto-enrollment has helped get
employees into 401(k) plans, what employees do with their assets
isn't necessarily appropriate. "Target-date funds have been a good
solution for this."
As for the questions now being raised about the appropriate
amount of equity exposure in target-date funds, Barbara
Fallon-Walsh, a principal at Vanguard, said, "Great minds don't
always agree in terms of what glide paths should be. I am sure
there will be a lot of work done to dampen the volatility in
target-date funds."
Ultimately, said Houston, there is no "super bullet," no one
product that will work for all investors. Solutions - be they
annuities or withdrawal strategies - must be tailored to fit the
needs of investors, he said.
-By Daisy Maxey, Dow Jones Newswires; 201-938-4048;
daisy.maxey@dowjones.com