Market Volatility and Retirement Plans


Market Volatility and Retirement Plans

Market volatility makes everyone nervous. Retirement industry executives suggest that now is a great time for plan sponsors to double down on efforts to communicate and share educational information with plan participants. It’s also a critical time to ensure protections are in place.


Keep Communications Flowing

According to Fidelity, average retirement account balances declined by 6% between the fourth quarter of 2021 and the first quarter of 2022. Of course retirement investing is all about focusing on goals and staying the course, but as experts admit: “Even a professional investor with an understanding of market volatility is lying if they say they’re not stressed when markets are down…It’s hard for employees, especially those who are close to retirement and who might see market volatility as the reason they can’t retire this year.” Plan Sponsor says that now is a critical time to ensure retirement plan participants are benefitting from plenty of communication and education:


If there are advice call centers or other financial wellness options that can provide advice tailored to participants’ individual situations, plan sponsors may want to highlight them to all participants, along with general messaging about the importance of focusing on long-term goals…“Plan sponsors and providers shouldn’t wait for market turmoil to hit,” says Raymond Bellucci with TIAA. “We should be communicating regularly with plan participants and focusing on both their short-term and long-term plans.”

Experts say that using in-person and virtual one-on-one consultations and communicating across different media, including text messaging and email, can reach the broadest swath of participants. Messaging should use plain language that even those without a financial background can easily understand.


Market research points plan sponsors and service providers toward the kinds of phrasing that makes retirement plan information less jargon-filled and more actionable for participants. For example, research conducted by Empower with the Harris Poll found:


Respondents said their desired language would be brief, concise or direct; efficient; simple or easy to understand; informative or educational; relatable; participant-centered; personalized; and engaging or attention-grabbing. For example, instead of “asset allocation,” Empower recommends using “investment balancing.” Instead of the acronym “IRA,” use “personal retirement account” or its full name, “individual retirement account.” Additionally, respondents in the survey preferred “complete financial picture” rather than “holistic financial view,” and “certified financial adviser” rather than “fiduciary adviser.” Thirty percent of participants in the report also preferred that an adviser be described as “a financial professional that must legally act in your best interest. Participants were also more likely to understand the term ‘investment balancing,” rather than “diversification,” “asset allocation,” “portfolio distribution,” or “investment allotment.”


There Must Be Someone To Blame?


Since a rising market is no longer a sure thing, retirement plan participants are stressed—and that makes it tempting to look for someone to blame. Why not the plan sponsor?

As FiduciaryNews experts sum up: “When your 401k is way down, you start to pay attention to the small things like fees and wonder if your plan sponsor is doing their part to help you save money.”  Indeed, it’s human nature to blame others in the face of threats. That’s why market volatility makes it extra important for plan sponsors to protect themselves against claims and allegations. Remember, even the possibility of a lawsuit can cause damage—and legal defense costs add up fast.


Don’t let an allegation of a fiduciary breach distract you from your business—and put your personal assets at risk. Colonial Surety offers affordable fiduciary liability insurance . Our annual premium is less than what you would pay for just one hour with an expert ERISA lawyer if disaster strikes—and we even include cyber liability insurance: Fiduciary-Cyber Pack Here.


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Good To Know—and Do

Employees who are nearest to retirement (5 years or less) and those who have already retired are likely to be experiencing the greatest stress about market impact on savings—as well as inflation. Accordingly, Plan Sponsor shares this advice:


If the plan offers lifetime income investments, this might be an opportunity to highlight those options and the protection that they can offer…For those with participants in a target-date fund…, communications might focus on how these funds take long-term market volatility into account and offer some protection, although evolving glide paths have many target-date funds more heavily tilted toward equities than they were a decade ago.This group also benefits from one-on-one conversations tailored to their personal situations…Those in the decumulation phase may face more complicated decisions than those still saving for retirement, so this may be an opportunity for plans that offer education or advice to urge retirees to take advantage of those benefits…Plan sponsors might direct them to tools that help them understand their asset allocation and create a plan that will offer them the most downside protection.


Monitoring Service Providers

Industry experts remind plan sponsors to have high expectations when contracting with—and monitoring service providers. For example, are your service providers excelling at giving participants high quality, data-rich information, and education? If not, how can it be improved? With the growth in requests for plan materials in languages other than English over the past several years, be sure too that the ERISA requirement for providing assistance to non-English speakers is being met.


Because it can be challenging to keep current on all ERISA regulations, plan sponsors across the country find it reassuring to secure Colonial’s  Three Point Coverage Package. This gives plan sponsors the greatest value and protection, providing:

the required ERISA bond to protect the assets of the retirement plan from theft; Fiduciary Liability coverage to protect you and your assets from personal liability; and, Cyber Liability coverage to safeguard your company and plan from covered losses and expenses in the event of a cyber breach.


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