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401(k) plan participants' trading activity soars

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After initial panic following steep declines in the equity markets last week, 401(k) plan participants' trading activity eased.

On Aug. 21, as the stock markets plunged, plan participants' trading activity was twice as high as a normal day, said Rob Austin, director of retirement research in Charlotte, North Carolina, at Aon Hewitt. As the market tumble accelerated on Aug. 24, trading activity skyrocketed, Mr. Austin said, with activity — participants largely moving investments from equity funds to fixed income — seven times higher than a normal day and one of the highest trading days on record.

Plan administrators said calls from concerned participants leaped. “Monday was the most calls we received in a day in five years,” said Katie Taylor, a director at Fidelity Investments in Boston. “Participants want to know what to do in times of market volatility.”

Other plan administrators, such as Principal Financial Services Inc., saw increased activity but not a surge, and only a small percentage of investors changed their allocations, a spokeswoman said.

But as the markets recovered, trading activity and call center volumes returned to near normal levels.

Helping to mute the impact was the fact that “(a) lot of participants have more diversified portfolios than in the past,” said James Ellis, director of investment consulting at Buck Consultants at Xerox in Atlanta. For example, in 401(k) plans Fidelity administers, 60% of participants' accounts were invested in equities in 2008 and 16% were in blended funds, such as target date funds. But as of June, 55% were invested in equities and 28% in blended funds.