As the U.S. struggles to navigate the current bear market, plan sponsors may feel there’s little they can do to help employees’ retirement savings weather the current economic storm. As a trusted advisor, many will look to you for guidance and reassurance. And while you can’t move markets (if you can, please let us know), this is a good time to encourage sponsors to focus on aspects of their plan they can exert greater control over.
Targeted participant messaging and education. Use participant communications to remind employees of the historical patterns of recession and recovery as well as the importance of time in the market versus timing the market. Younger employees, in particular, might not understand the cyclical nature of downturns because they’ve never experienced them before — at least as an investor.
Additionally, explain — or re-explain — the advantage of dollar-cost averaging. Discuss how historically, investors who continued to contribute fixed amounts to their 401(k) plans at regular intervals in bear markets allowed them to purchase equities at a reduced price and enjoy growth when markets recovered. This knowledge and reassurance from a trusted financial professional to stay the course may help quell uneasiness.
Increased advisory availability. Participants who are closer to retirement or those struggling more with financial anxiety may particularly benefit from increased access to one-on-one sessions, where they can more comfortably get individual concerns addressed and questions answered. Bear markets test investors’ comfort level with riskier assets. And while high gains during times of prosperity may have led some investors to reallocate to more volatile investments, the market conditions of the past few weeks and months could serve as a needed wake-up call. Speak with participants about the level of risk they’re comfortable with in times like these. You may find they give you very different answers than they did several months ago. Participants’ reconsidered responses can be used to help them develop a more accurate and appropriate view of their risk tolerance and investment style moving forward — and help them better cope with any future cyclical dips.
Steps for fiduciaries. Plan fiduciaries should monitor and document the continued reasonableness of investment options within the plan, including TDFs used as a QDIA given current market conditions. Additionally, this may be an appropriate opportunity to review the plan’s investment policy statement to ensure this document still accurately reflects current business and financial objectives, investment-evaluation criteria, processes, decision-making and other strategies.
More frequent fee benchmarking. Investors and sponsors alike may scrutinize fees to an even greater degree in down markets. And while you can’t directly control investment performance, you can ensure their fees remain reasonable with regular plan benchmarking. PlanFees offers comprehensive benchmarking that gives high, medium and low reference points for investment, recordkeeping, administrative and advisory fees of similarly sized plans. With PlanFees Prism Total Fees Benchmarking, you can demonstrate to sponsors and participants that fees are in line and hopefully significantly lower than those of many similar plans. With PlanFees, you can benchmark a plan in less than two minutes based on just a handful of data points.
If you’re an advisor offering a higher level of service that your clients rely on, the Prism365 Advisor Fee and Services Benchmark report lets you benchmark advisory fees and service frequency with just a few clicks, reflecting the delivery and frequency of 15 essential fiduciary services. PlanFees is committed to helping retirement plan advisors like you reduce fiduciary risk and promote better plan outcomes for plan sponsors and participants. PlanFees lets you benchmark annually, whenever circumstances warrant or whenever you feel it will benefit a client.