Overcoming 401(k) negativity
November 19, 2008 by Bill MeltzerPosted in: Employee education, Retirement, Special Report
The struggling economy has caused a lot of fear and misinformation to spread about the security of retirement benefit plans.
Every time employees turn on the TV or read the newspaper, they’re bombarded with reports such as the recent one that said that U.S. 401(k) accounts have lost $2 trillion in the past 15 months.
Employers are already feeling the pinch. Organizations that don’t feature automatic enrollment report a 15% dropoff in participation this fall, according to one estimate.
While those with auto enrollment haven’t taken as much of a hit, employees have more questions and concerns than ever before. Here are three suggestions for calming employees’ worries:
1. Offer financial planning benefits
Now more than ever it makes sense for your organization to offer employees’ access to a third-party financial advisor (i.e., someone with no direct stake in your 401(k) plan). Three reasons:
- A recent study showed 71% of employees lack even basic knowledge of the workings of their retirement benefits, which increases the chance of folks taking ill-advised withdrawals or not enrolling at all
- legally, it’s risky for a plan sponsor (i.e., anyone at your company) to give financial advice to employees. It’s much safer and to outsource it a third-party expert, and
- Under ERISA, you have a legal obligation to explain to employees the workings of your retirement plan – including fee schedules and the selection choices for investments.
Historically, this obligation has been met when the vendor mails a plan prospectus to the enrolled employee.
The document explains the risks of investing and goes over plan fees. But few employees read through (or understand) a prospectus. And the feds have increasingly been turning up the heat on employers to make sure employees receive the information in a format they can understand.
One of the simplest ways to do it is to hire the third-party advisor to read the prospectus and “translate” it into plain English for employees.
2. Review auto enrollment basics
If your firm offers automatic enrollment in your retirement plan, it’s crucial to make sure that employees understand:
- no retirement plan is immune from financial ups and downs, but the accounts grow over time
- management at your organization selects and (on an ongoing basis) reviews the plan investment options – both the defaults and any alternative options, and
- money is withdrawn from the employee’s’ paycheck and placed in retirement accounts unless (or until) he or she opts out.
Reviewing this basic information (even if you’ve done it before) encourages employees to stay the course with your retirement plan. It can also put your firm in a stronger legal position if an employee sues, claiming management “took and lost my money” during the current bear market.
If your company doesn’t have auto enrollment, management may want to consider it in the future.
3. Remain calm
The best thing management can do during the current economic situation is to show employees that:
- you take the safety of their retirement benefits seriously
- their concerns are normal, and
- the best advice is to stay the course, because down markets inevitably go up again at some point.
Remember: If employees go only by their current 401(k) statements and get all their education from the doom and gloom they hear, they’re more likely to panic. Otherwise, a little knowledge is a dangerous thing.
November 20th, 2008 at 2:15 pm
What about the questions regarding Obama taking the 401K proceeds and making them a part of Social Securirty?
November 20th, 2008 at 2:54 pm
That’s the question I get most often…”Is Obama going to take over our private retirement plans?” If so, people want out and they want what’s left of their money out of the plan now (duh!). They (rightfully) feel like this money should be theirs and theirs alone…not shared with those who have not saved and scrimped and planned. I totally understand and sympathize with them. The government already takes a chunk of what we make for taxes and social security and now they are talking about taking everything we’ve managed to put away for retirement? Perhaps if we restricted payment of social security to those who have actually contributed to the system, such action would not be needed? That’s the hottest topic of all. What are we supposed to tell our employees about this issue?
November 20th, 2008 at 2:57 pm
Melissa has a good point and well founded. The government has found that by offering a means whereby workers can remove money from taxable assets that generate much needed capital that can be used by these big spenders, they have shortchanged themselves out of all the money. The plan put forth by the democrats recently will convert 401K’s to government bonds returning 3% interest.
If that doesn’t scare anyone not in a coma then I don’t know what will. Look at the horrific record of accomplishment Barney Frank, Chris Dodd, Franklin Raines, Nancy Pelosi and Harry Reed have done to this economy already. Now, without any possible constraints upon their power and ability to legislate more waste – it will become an even larger socialistic welfare state. Hysteria is well founded and based upon recent performance…. I am cancelling my 401K now to stem future losses (of money and freedom). Throw your own money down the big hole. No thanks.
November 20th, 2008 at 3:20 pm
Melinda says:
Look at the financial mess that has been created in the White House over the past 8 years: war, bureaucrats with special interests have received hugh financial kickbacks personally, and the list goes on and on. Who has really looked out for the struggling middle class ? Now that certain individuals are leaving the WHite House, everyone is expecting Obama to fix the mess that he is inheriting. We need to pray for his strength, wisdom, and discernment to help come up with a strategic plan to fix the mess that he is inheriting. It’s amazing how people love to point a finger on individuals, when it took a team of selfish bureaucrats that looked out for their own personal financial gain in the first place. Let’s get real!
November 20th, 2008 at 3:24 pm
Go ahead, you all, follow the fear! And act like “71% of employees [who] lack even basic knowledge of the workings of their retirement benefits”
The sky is falling, the sky is falling.
This time it might be, because the whole system is built on a house of wobbly cards. The whole reason there are 401k’s is so THEY could get YOUR $ into the speculation market…cash out when it is low and you lose, but SOMEBODY else gains. Who do you think GAINS? duh?
Read The SHOCK DOCTRINE:The Rise of Disaster Capitalism by Naomi Klein http://www.naomiklein.org/shock-doctrine/the-book
The more they have us quaking in their boots, the more control they have to do whatever they please…none of this is new folks, THEY, the Disaster Capitalists (not the Congress, but they control the Congress and most of the media with the same mind games they control all of us) have been working on this for decades…they suckered an entire country into easy credit…then jacked up our rates. We lost the values of our parents & grandparents, which was to live within our means and save a little….and they dumbed us down in the schools, and education and education loans are just another profit industry…and here we are, the investment market has been democratized. Everyone’s money is IN…they baited us with tax free deduction/contributions to the 401k’s…and now everyone’s retirment plans have lost 30-50%, totally lost our employers MATCH contributions, plus some of our own, but hey, we didn’t have to pay income tax on it, and our companies were able to write off their contributions and pay less tax too, so it’s all win-win right? Or is it. It’s time for everyone to pay attention and start thinking for themselves and figure this out, and STOP playing THEIR game….take back your democracy!!!
November 20th, 2008 at 3:40 pm
Melinda,
Don’t know where you were going with that statement. We are discussing the possibility of you and all your friends and family loosing your 401K money. Not about who’s fault it is that we are in this mess to begin with. By the way you may remember that we only have seen these issues arise in the economy after the Dems took over Congress. President Bush had made mistakes but had not stolen anyone’s money.
November 20th, 2008 at 3:46 pm
Obama has not proposed nationalizing our 401K at 3%. It is ironic that this email was sent in order to teach us how to calm employees misperceptions about their 401K and then in the blog section untruths are being disseminated.
November 20th, 2008 at 3:54 pm
Sorry Sally, He sure did. You can find the plan on any number of news sources online. I just googled it myself to send a link but there were too many to narrow down. Please get your facts straight. Also, my initial question WAS about how to handle the employees questions regarding this issue.As you can see by the posts that have followed… There are very many of us who ARE concerened over this theft and wonder how this could happen in America!
November 20th, 2008 at 4:04 pm
I’ve had several employees wanting to take all their money out of the plan and run! When I explain they can’t (short of a hardship distribution or leaving their job) they become mighty angry. They aren’t mad at me or our company or even the government – they are frightened to death of what’s coming next.
Can’t say that I blame them – I’m frightened too.
November 20th, 2008 at 4:06 pm
Sally is wrong.
If any of you Obama supporters would do your homework and stop chanting the Bush Derangement mantra (Bush Lied) you’d see that Representative George Miller D-California has proposed this fall that 401K’s be nationalized (read “confiscated”) so they can be protected by the government.
Professor Ghilarducci at the New school for Social Research proposed that the government eliminate the tax break for 401K’s and IRA’s and CONFISCATE workers retirement accounts and convert them to the UNIVERSAL Guaranteed Retirement Accounts (GRA’s) managed by the social security administration. Time to talking with some background info….
This was supported by and commenced by the democratic controlled congress. Wake up people… this is socialism pure and simple. I note the recent Zogby poll showing Obama voters at over 50% had no clue about who our (their) elected representives were and they interviewed these genius types on video – you can watch in horror on youtube. These are your employees…so ill informed. I also see Biden gave a wopping 1/10th of 1% to charity while extolling us to pay more taxes as being patriotic…whilke Dick Cheney donated 40% of his income to charity. Money talks BS walks …
November 20th, 2008 at 4:09 pm
Furthermore: where’d this idea come from that Obama is going to suck our 401ks into Social Security…this is what I know:
Barack Obama supports allowing senior citizens to delay withdrawals from 401(k)s, and believes we don’t have to wait for Congress to act to provide seniors with these protections. He’s calling on the Treasury Secretary to temporarily suspend Treasury regulations and allow seniors to delay these withdrawals. He also hopes that Senator McCain will reconsider his ill-advised support for Social Security privatization, which suffers from the very same problem he is now trying to solve since it would potentially force seniors to retire when the market is down and their retirement accounts have disappeared. Senator Obama also calls on Senator McCain to support his new small business rescue plan that will extend badly-needed credit and tax relief to the men and women who are creating jobs in this troubled economy.
AND: Under a proposal by Democratic nominee Sen. Barack Obama, 401(k) plan participants in 2008 and 2009 could withdraw 15% of their account balance, up to $10,000, for any reason and not be assessed the 10% penalty tax that now applies on such withdrawals. Regular income taxes would continue to be imposed.
both of those proposals for starters sound like good ideas to me. It would help seniors who don’t need to withdraw funds while their value is so low, and it would help those of us still trying to make it by allowing us to withdraw some of our 401k funds without penalty, which would infuse money back into the main street no doubt. Tell me why that would be bad for any of us?
November 20th, 2008 at 4:18 pm
Right, left, red, blue…it doesn’t matter which side you’re on. Greed on all levels is what got us in this mess. What we need to be doing is working together, not attacking each other. Listen to the economists and realize this is going to get worse before it gets better. Start tightening your belts, learn to live within your means, recycle and reuse what ever you can. Learn what your grandparents did to survive during the depression era. Before you buy something, think…is this something I want or I need?
November 20th, 2008 at 4:27 pm
Marcus, when did Representative George Miller D-California who ” proposed this fall that 401K’s be nationalized (read “confiscated”) so they can be protected by the government become Obama?
And our 401ks are alreayd being “confiscated” by the “free market.”
Melissa, if you can’t bring yourself to “narrow down” the many online newssources, whydo you even bother mentioning them. If you have valid information, please share it… copy a link, any link and paste it into your message. It’s not that hard.
All, for better or worse , Obama is our President, so if you have the solutions to these huge problems, you best become activists for what is best for our country. Easy to criticize and label others solutions as “marxist” (from yesterday) and “socialism” while you support the socialist benefits of your congresspeople, and subsidize the record profits making oil companies, and let the insurance companies rob us all blind, and ignore the privitization of war that definitely causes some conflicts of interest, etc. etc. There is plenty of blame to go around, but blaming doesn’t CHANGE anything.
The ILLUSION that has been our consumerism culture cannot last forever, nothing can. It’s time for us all to get REAL if we can even figure out what that means anymore. Perhaps we should look to Ireland which McCain was touting as having only 11% income tax…maybe they’ve figured it out, or maybe they just have a different illusion going.
November 20th, 2008 at 4:59 pm
OMG everyone, you’re all behaving like a bunch of new kids in a new school…..! “It’s gonna get worst before it gets better” “Start tightening your belts” What is the matter with all of you! It’s plain and simple….DON’T LIVE BEYOND YOUR MEANS! I have, for the past 27 years (I’m 45 now)! HOW? you ask….I have NO CREDIT CARDS! You should all try it! Then maybe you wouldn’t feel so panicky! The so called crumbling economy has not affected me….in fact I’m prospering from it! The only reason I’m upset is because my tax dollars are bailing out all these greedy republicans who put “us” here. WHO’S ASKING FOR A HANDOUT NOW! Doesn’t sound like a potential welfare recipient.
November 20th, 2008 at 5:05 pm
It is always a good idea to go to the source. http://www.barackobama.com/pdf/retirementFactSheet.pdf
November 20th, 2008 at 5:08 pm
Please, everybody take a breath and see the third point in the article above. It says “Remain Calm” and that is good advice. Look, the market goes up and the market goes down. If you go back to 1929 and follow the market, you’ll note that on average it has returned about 10% a year, that being done during both Republican and Democratic administrations, during peace and during war, during boom and bust, during hysteria and during calm. Knock off the hyperbole and you’ll avoid adding to the anxiety. Remain calm.
November 20th, 2008 at 5:25 pm
Are Are Melissa, R. B. and Marcus HR/Benefit professionals? I’m somewhat shocked at their attitudes. These are the type of comments I would expect (and have heard) from people who are not benefit professionals. The truth of the matter is that the bill, should it get that far, to turn over retirement plan management to the federal government has almost no chance of passing.
November 20th, 2008 at 5:35 pm
MiddleMgmt–Where did Naomi Klein get her economics Ph.D. from? Oh, that’s right, U. of Marxism, i.e., nowhere. She’s a Canadian left-wing journalist and her book is Chomsky-wannabe economic gibberish. For Marxists the collapse of “capitalism” has been just around the corner since 1848 and they’re no less clueless today. If she’s so smart, why didn’t she predict the subprime mortgage collapse in her book like real economists have since at least 1999 (see NY Times http://query.nytimes.com/gst/fullpage.html?res=9C0DE7DB153EF933A0575AC0A96F958260&sec=&spon=&pagewanted=1)? Why do they always chime in after, not before, the fact? Sounds like you’re the one who needs to wake up. You blame everyone except Saul Alinsky-trained “community-reinvestment” lender-pressuring “community organizers,” Democrat legislation forcing banks to lend to “subprime” borrowers (i.e., uncreditworthy borrowers who couldn’t repay their loans), Fannie Mae, Freddie Mac, Bill Clinton, Franklin Raines, Barney Frank, Chris Dodd, i.e., all of Naomi Klein’s buddies. Capitalism will be just fine when Americans wake up and stop the socialists in the US government from trying to destroy it. Meantime, like post-October 1987, next year looks like a good time for younger people to add some stock at bargain prices to their 401k portfolio.
November 20th, 2008 at 5:43 pm
Okay..everyone stop and take a deep breath. I realize that tensions are high, economy is down people are freightened of the unknown.
Now it doesn’t matter which side of the fence you are on we only have one America. We had better get together and work together if we want to save her. We can’t be fighting with each other we have have to work together to find solutions.
Our new president is surrounded by congressmen and women, more women than ever before. They have good sense and I am sure that if it is not good for the country they will rally and stop the action from happening.
I tell my employees this:
Let’s just wait a little and see what will happen before we get too worried. A lot of things are said at election time, most never do come to pass. The president cannot act alone and he can be over ridden by congress if need be.
If you are concerned about a policy or a law or just a statement than you have the right to contact your congressman or congresswoman and talk to them about it. You and I elected these people to represent us. If we have concerns about a matter we need to let them know because they are the ones that can make the difference with their votes.
After you have done that just take a deep breath, sit back and see what happens because you have done what you can do and anything else is out of your control. Worrying more about it will not change any actions that will take place.
Shirley
November 20th, 2008 at 5:58 pm
Here are two good articles regarding the subject:
http://www.workforce.com/section/00/article/25/83/58.php
http://online.wsj.com/article/SB122662401729126813.html
November 21st, 2008 at 8:48 am
I’ve sat here this morning and have read all of your statements on 401ks. Some good and some bad. But I have to tell you. Everyone needs to calm down. All of this didn’t happen over night, so it’s going to take time to fix the mistakes of all….
Bashing our president and or congress (past, present or future) isn’t going to help any of us. We need to try to come up with answers to the problems at hand and not continue the beat each other up.
I’m been HR for over 20 years and seen alot of different things happen and I can tell you that we need to have some patience. Things will work out.
November 21st, 2008 at 9:46 am
Thanks, Shirley, for taking the time to give those of us who asked for some ideas a few examples of what we can tell our employees. That’s what I was hoping to hear…ideas on how to handle the situation. Though I am an HR / benefit professional, I’m not an economist, politician, expert, or a financial planner, etc. It’s a very confusing time, it’s frightening and it’s difficult to know what to say. I would love to hear more thoughts about what to tell employees because I do get hit all the time about how the government is going to take over our 401(k) plans and it is causing people to stop participating. I fully understand their feelings because I don’t want to lose what I’ve managed to save either, but I don’t know enough about what is being proposed and what it might actually look like if it did go through to help anyone. I have been a little surprised at attacks and accusations and am personally hoping for more ideas.
November 21st, 2008 at 9:47 am
Thank you Kathy…….
November 21st, 2008 at 11:07 am
RB,
I was also very suprised at what transpired, this is the first time I have participated in such a discussion, although we have them on our HR site all the time.
I think one thing I will tell my employees is it is too soon to answer your questions because no new legislation has been presented for approval at this time. I will be actively seeking out information on this situation and when I find out anything new I will pass it on to you. My SHRM community is very good at keeping me informed of possible legislative changes and what they mean to us.
I will do what I can to find out what is happening with the 401k and pensions and keep you informed.
Shirley
November 21st, 2008 at 11:11 am
Well stated; Shirley McAllister and Kathy.
November 21st, 2008 at 11:12 am
I am a HR professional also, and the business that I work in the employees average age is 50 1/2 so the confusion and terror in my employees is HUGE because they are so close to retirement. What do I tell these employees, to just wait and stay calm. This is a great sentiment but it does not calm their fears, nor mine. All of the above people in this blog have some great notions (and they are just notions) no one is certain what will happen in the future but wouldn’t it be nice to be able to calm the fears of our employees some how? And show them that they can count on someone at this time of terror. Does anyone have any more ideas on how to do this?
November 22nd, 2008 at 11:29 pm
Kathy,
There is no magical solution to make people feel better about bad times. It is going to take a while to get things back to normal. It is going to also take a while before we find out just what will transpire when the new predident takes office. We are not taking this without seriousness because it is serious. The truth is that there really is nothing we can do about it until we really know what is going to happen. There is no sense getting all upset over something that may or may not take place.
I am in the baby boomer era. I had hope to retire in about 5 years, now I am sure it will be longer. I, however, also know that worrying about it will not solve any problems and it will cause me stress and upset my thought process.
Instead I have just decided to wait and see what happens and try to stay calm and have faith in our country and the system we have in place for our law makers. I have learned to know what I can change and what I cannot change. If I cannot change it I need to accept it.
Whether we worry or not whatever is going to happen will happen and there is little we can do about it. I still will tell my employees to try and stay calm until they know what is really happening.
Shirley
November 24th, 2008 at 12:36 pm
Wow, alot of comments. I am a CPA that also runs the HR department. I have been following the trends by actually reading newspapers like Investor’s Business Daily which would cause many to gloss over (these rags are great to read late at night for insomniacs). I have found that most investors that actually have large money are being very conservative (bonds, money markets, contra-funds, etc.) until they see 1) who Obama is appointing for staff positions, and 2) what congress is planning to do.
The bailouts that were so critically needed to save the banking industry wound up being mostly smoke and not fire. Banks just seemed to use this free money from our taxes to just buy other banks instead of lending it. The car bailout is next and I believe it will be handled just as poorly.
HR managers hold on to your emotions and expect double digit unemployment in the next few months as congress causes a bigger mess. If this happens, deinflation is inevitable. Paycuts for everyone will be a necessisity to maintain going concerns as well as job sharing to keep your ritical employees. Read what Procter and Gamble did during the depression (The CEO took a 50% paycut).
As far as politics, if CPA’s and Engineers could get elected instead of lawyers and professors that look and sound good, I believe that this economy would have a soft landing and get back on its feet very quickly. Would it be amazing to actually get people in there that know what they are doing instead of professional lawyers and professors from theory land that never had to make a product or make a substantial payroll. But alas, I can only dream.
Kevin
January 25th, 2009 at 12:31 am
One reason for all the losses is too many people are putting money into a 401K and not watching the earnings. I have fellow employees who have no idea how their money is invested. They just say “I dread seeing my next statement.” Our plan has a stable fund that earns 4%. Why not put the money into that until things get better? I haven’t lost anything from 401K investments.