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If there ever was any doubt about the value of educating employees about their 401(k) savings plan options, this week's turmoil in the stock market should forever quash those doubts.
When the stock market plunged by more than 500 points last Monday, it would not have been surprising if a high percentage of the roughly 25 million participants in 401(k) plans had panicked and moved out of the equities market, an action that would have exacerbated the fall in stock prices.
But that didn't happen. By the close of the market Tuesday, investments in equities funds held by 401(k) plan participants probably showed a slight increase compared with the start of the week, benefit consultants and employers said.
At the same time, benefit managers said they were struck by the virtual absence of calls from employees concerned about their 401(k) plan investments. Reason and calm-amid an ultra-volatile market-were the order of the day for plan participants.
This calm employee response to a turbulent stock market is not an accident. It is a direct response, to the multiyear communications campaigns employers across the country have been conducting to educate employees about their 401(k) plans. A message employers have been trying to deliver during those campaigns is that employees should think of their 401(k) plans as long-term savings vehicles.
Certainly, implicit in that message is that trying to chase the equities market-constantly jumping in and out-makes little sense and in fact can be financially ill-advised if your savings plan objectives stretch out over many years.
The fact that 401(k) plan participants did not flee the equities market is an indication the message is being heard.
We also think the revolution in benefit administration technology played a key role in preventing panic. It was unimaginable a few years ago that employees could retrieve information or take care of certain savings plan functions with the ease of a telephone call.
Through voice-response systems and benefit administration centers run by benefit consultants and other vendors, 401(k) plan participants can get up-to-date information about the values of their accounts and seamlessly change from one type of investment to another.
Call volumes to voice response systems and call centers surged last week. In some cases, volumes were double and triple normal volumes. But a good percentage of calls by participants were simply to find out account balances and to get assurance that if they wanted to change investments, they could do so.
Just knowing they could get information quickly and move their investments easily had to have had a calming influence.
With probably more market turbulence ahead, one thing that employers can do is give employees more investment choices. The risk of putting all of one's eggs in one basket is much reduced when savings plan investments are spread out among many options.