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Five Trends to Emerge from a Messy Market
IT
SEEMS EVERYWHERE
you turn these days you see headlines about shaky
markets and anxious investors. What does all this mean
for 401(k) plans? Here are five trends to watch.
1.
Increased use of 401(k) loans
Food, gas and other living expenses are on the rise. In
addition, credit has become more expensive and less
accessible. The result: many plan participants are
having trouble making ends meet.
That means more plan participants are likely to begin
tapping their 401(k) for a loan, reducing contributions,
or both. In addition, there is growing interest in
making 401(k) hardship withdrawals. In this environment,
it is important for advisors to clearly convey what sort
of loan provisions are part of the 401(k). This should
include communicating to participants about how
borrowing from their 401(k) may impact future
contributions, as well as what does and does not qualify
for hardship withdrawals.
2.
Lifecycle funds to gain prominence
Only about one-third
of
plans provide investors with a
life cycle fund option, according to
recent figures from the Profit Sharing/401(k)
Council of America.
The “statement shock” for investors who did not
diversify will likely give rise to that statistic.
Lifecycle fund options can help take the guesswork out
of asset allocation and could better position investors
to weather a financial storm than if they adopted a “go
it alone” strategy. Look for life cycle funds to get
more attention as a default investment option.
3.
Accelerating auto enrollment
Ultimately, the current market volatility will not
prevent widespread adoption of 401(k) auto enrollment.
First, the full effects of the Pension Protection Act
have yet to take hold. Second, the onus is still on
employers to do more to enhance savings as defined
contribution alternatives take the place of traditional
pensions. Additionally, plan sponsors are already coming
under the microscope for not promoting more conservative
and balanced investment options. Taken together, these
factors make it more likely that plan sponsors will
adapt simple and relatively safe auto enrollment
features as opposed to making non-participation the
status quo at the outset.
4.
Louder calls for fee transparency
Anxiety over market performance is also fueling the
debate over 401(k) fee disclosure. Of course it remains
an open question whether concrete policy changes will
emerge anytime soon from Congress or the Department of
Labor. Yet even without legislation, employer clients
will demand a better accounting of fees.
In a recent Hewitt Associates poll of medium to large
companies that provide a 401(k) plan, 55 percent said
they intend to review their plans, including an
examination of the overall expenses and indirect
payments associated with maintaining the plan.
Providers and advisors should seek to get in front of
this issue by bringing more participant-friendly
disclosure and greater transparency to the fees
associated with their plans. That means going the extra
mile in providing education and assistance so
participants can better decipher their investment
options and associated costs. Expect more clarity in fee
statements and more regular updates from providers to
help satisfy plan sponsors and participants alike.
5.
Greater recognition that challenges =
opportunities
The untold story amid all the doom and gloom is the
tremendous upside to launching or expanding a 401(k)
plan in the current environment. It is important to
remember that markets can go down, but they can also go
up. Getting in now enables investors to participate in
gains when markets recover.
For one, there are bargains to be had, which is why
staying in the market is so important right now.
Likewise, market swings underscore the tremendous value
of dollar cost averaging. Investors are apt to pick up
more shares from their systematic contributions in the
current market environment than they would if prices
were at their previous highs. Over time, that results in
lower average costs and potentially greater real returns
for participants.
Investment decisions should be done with a long-term
view in mind – and a 401(k) is no different. Recognizing
these trends early can give advisors an edge when the
markets become more stable and start to turn.
* Jim Daniel is executive vice president of Corporate
Retirement Plan Distribution at Symetra Financial. He
can be reached at
jim.daniel@symetra.com
or 1-800-706-0700.
Headquartered in Bellevue, Wash., Symetra Financial
Corporation provides retirement plans, employee
benefits, life insurance and annuities through a
national network of independent advisors and agents. For
more information, visit
www.symetra.com.
AORP70-0508 |
