Employee 401(k) Dialogue in a Wild Market

Today, employees are seeing the value in their 401(k) plans decreased by 20%, 30% or even 40% from just a month ago.

How do you address the fear this has created? 

To get employees thinking constructively about saving again, communications can begin to focus on three main areas:

• Think Before You Take. Thoroughly evaluate the benefits and consequences of taking money out of the 401(k) plan. First, all withdrawals are subject to income tax and possibly a 10% early withdrawal penalty. Saving in a 401(k) is intended for use during retirement when income is reduced and tax brackets are lower. Second, when you take out money, you are selling stock, which means most likely you bought high and are selling low at a loss. 

• Consider Changing Your Asset Allocation for Future Contributions. Asset allocations should be based on years from retirement and the level of risk you want to take. If you feel that you are taking too much risk (investing in higher risk stock funds), then consider putting future allocations into a more conservative mix. You can always change your allocation in the future, as the plan allows. 

• Look at Your Personal Situation and Timing. When do you need your money? Is retirement only one or two years away? If you don't have time in the market to regain your losses, you need to make decisions on your current investments. The option is to wait it out in the market, or cut your losses and move existing savings to more conservative funds in the plan.

You want your employees to sleep at night, and directing them to take a role in their savings may empower them and remove the helpless feelings this economic crises has created.

Comments

[Manarin]

I tell people that the financial gods have given them the gift of a lifetime so take advantage of it.

They are now buying more shares of their future wealth at discounted prices. My hope is that you are contributing the max to your 401k (or other pretax retirement account) that your budget allows.

[Christine Miller]

Yes, it can be a good time to buy. Education can always help people make the best investment choices for their financial situation.