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Market Instability Worrying Your 401(k) Plan Participants? Tips to Educate Employees on their Investment Options 

With recent economic fluctuations – and wild swings in the stock market – some 401(k) plan participants, especially those nearing retirement, are concerned. Whether as the plan sponsor, administrator or as a business owner with a 401(k) plan, how can you help your employees understand their options? To help them adjust to an inconsistent economy, educate plan participants about their options. 

Participants are right to be concerned about the impact of market fluctuations on their retirement plans. No matter where they are in their retirement planning journey, everyone in your plan will need guidance and resources. Taking a nuanced approach can help ensure employees have the education and resources they need to make informed decisions.  

Tell Participants Not to Panic 

It’s easy for participants to panic as they receive alert after alert as stocks zing up and down. Do what you can to try to alleviate their panic while keeping their age in mind. A younger individual may have more time for their individual investments to recover. Tell them not to look at their account as the market continues to respond to events in the environment.  

The down market is a good time to buy: this is a good reminder for people who are hesitant to continue investing and for those who haven’t started yet. Remind them that this isn’t day trading. It’s a long-term investment where you put your money in, leave it alone, and watch it over time. This isn’t the first time the market has fluctuated; a rebound is inevitable over time. 

Anticipate Different Needs for Different Generations 

Younger employees may be experiencing a market downturn for the first time and are unclear on what steps, if any, they should take. A bit of guidance on what to expect during a market downturn will help, as will reminders that they’ll have plenty of time before retirement for those funds to rebound. 

Older employees, on the other hand, are likely to remember the 2008 recession and are more familiar with what to do. They’re closer to retirement, so recent events may have them understandably worried. Even if they don’t plan to retire this year or next, this could delay their retirement or force them to change their retirement plans. Market instability can throw off forecasts, which impacts participants looking to retire 5 or more years down the line. Inviting an investment advisor to speak with them in a one-on-one consultation can help give them more confidence in their plan. You could also discuss the pros and cons of moving to a more conservative fund, which minimizes both losses and gains.  

Involve Investment Advisors 

Most plans will have a financial advisor assigned to the plan who is there to help educate employees. Set up regular meetings and teachings. They can help you determine your best plan for investing and tell participants about the different types available to them. Remember, this needs to be a licensed investment advisor. Using someone who has personal knowledge about investments and feels qualified can land you in serious legal trouble if they provide investment “advice” to plan participants without any licensure. There are federal and state regulations that you’d be breaking. Be careful about directing participants to choose a particular investment or leave one, since that can land you in legal trouble as well. 

Review Investment Options 

Consider reviewing planned investment options:  

  • Do you have too many or too few?  
  • Are they diversified? Or are they all equity?  
  • Should you include bonds, guaranteed type product or annuity products?  

Consult your investment advisor and look at what you have now at least annually, if not twice a year. If your fund is significantly underperforming, you can talk to your investment advisor about replacing it. Keep in mind that you don’t want to swap out investments just because of how the market looks now. You should base it on structural changes of the investment fund, such as? its fee structure changes. Your investment professionals will have more information about the structure within those funds.  

Reach out to Your Service Provider 

Your 401(k) plan service provider – a recordkeeper or custodian, like Fidelity or Schwab – will have investment classes around investments they hold. They’ll also have materials that they can share with you and your participants. A service provider can even possibly provide virtual or in-person presentations for more information. You can invite employees and their families and serve them some snacks as they learn about investing. This is another good opportunity to host one-on-one sessions as well. This can help ease fears and give participants the information they need to get them through this difficult time.  

Keep Resources and Communications Simple 

Keep it simple. Investments can be complicated. A 100-page set of material with lots of complex jargon can create more confusion than is necessary, causing some to turn away. Keep it easy to read and use easy to understand language. Participants shouldn’t feel like they need an advanced finance degree to digest what they’re reading. Your service provider can send you prepared educational materials so you don’t have to create them yourself. Work smarter, not harder.  

Stay Proactive  

Be proactive – don’t assume that because you’re aware of current events and no one’s said anything yet that everything’s fine. They may be overwhelmed, scared or even angry, but they don’t feel comfortable coming forward. At the very least, some are concerned. Sharing relevant information or giving them access to additional education can help.  

Scenario: 

A participant comes to you, worried about the market. They need extra cash for personal reasons. How should you advise them? The following should not be taken as advice, but rather as a guideline to ensure you’re asking the right questions: 

Tell them how to access their funds. There are participant loans and hardship withdrawals available to those who meet certain requirements, as well as additional distribution options offered by SECURE Act 2.0. There are also downsides that you should inform your participant about. Some plans require participants to take out a loan first before they can be eligible for the hardship withdrawal, so make sure to advise your participants based on what’s allowed within the plan document.  

Keep their best interest in mind, as is your fiduciary duty, and guide them to their best option. Is it in their best interest to withdraw while the market’s low, which will take a long time to build back up? There are many reasons they may need that loan but just make sure your participants know the consequences and implications of taking it. If they take out a loan, then lose their job or their workplace closes down, their loan could become due or taxable. Do your participants know about this risk? Ask them if they want to pay tax now or later, which will help them understand how best to plan for retirement.  

For more information on how our 401(k) audit team can help, request a free consultation below to discuss your unique 401(k) audit needs. 

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Our firm provides this information for general educational guidance only and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Podcasts posted by Anders CPAs + Advisors are not intended to be used and cannot be used by any individual or business, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided "as is," with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose. Please note that some content may be generated using artificial intelligence and is intended for educational and informational purposes only. In no way does listening, reading, emailing or interacting on social media with our content establish a professional relationship.

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