Once again, we’re experiencing volatile markets. During these times, it’s common to hear the following statements: It isn’t time to panic. This has happened before. Make sure the pension plan’s asset mix is correct.
While these messages may be good advice for individual investors, defined contribution plan sponsors should be considering how to help their employees. Here are some tips for DC plan sponsors in times of volatility.
1. Co-ordinate employee education
Many consultants, record keepers and brokers offer employee education sessions, either via webinars or in person. It’s a great time to use these resources to talk to plan members about things like investment risk tolerance, asset mix, long-term goals and providing projections for retirement. Often, just having a discussion with a professional can allay fears and assure people about their decisions.
However, it’s important to remember that plan sponsors can’t provide advice. Instead, provide plan members with the opportunity to speak with a group retirement specialist; this will protect the company and show the plan sponsor is complying with its fiduciary requirements.
2. Review the investment fund menu
Every time we experience market volatility, individuals are asked to review their risk tolerance and investment mix. DC plan sponsors can go through a similar exercise. Take the opportunity to review the plan’s investment fund lineup. It’s also a great time to review the default fund to determine whether it’s appropriate. And it can also be time to remove funds — often a plan sponsor ignores an investment fund when times are good because it’s more convenient than changing it.
It also may be a good time to fine tune the whole investment menu. Making appropriate changes to the menu also illustrates to staff that the plan sponsor is fulfilling its fiduciary responsibility.
3. Review the plan design and policy statement
In volatile times, individuals are also asked to ensure they’re reviewing their long-term goals and their overall financial plan. It can also be a good time to review the governance documents and ensure the plan’s overall intentions are still appropriate. Are employees seeing the same value in the plan as they did when it started? Is the plan flexible enough for most members?
We’re seeing a growing trend of younger members opting for savings plans with more flexibility compared to a traditional DC offering. For instance, plan members in cities with high housing costs are interested in group registered retirement savings plans instead of a locked-in plan so they can use the assets for the first-time home buyer incentive.
During volatility, it may be a good time to review employees’ wishes alongside the plan sponsor’s intentions. If changes are required, the governance documents can be amended accordingly.
As in most cases, opportunities can arise from challenges. The challenge of a downturn is also an opportunity to review the current DC plan and ensure employers are doing what they can to fulfill their fiduciary responsibility.