Your Employees’ 401(k)s Have Tanked. Now What?

By Jennifer Thomas | June 24, 2020 | Rally Health


The uncertainty brought on by COVID-19 understandably has people feeling shaky — something that’s being mirrored in the stock market, too. That means many of your employees’ 401(k)s have taken a major downturn.

Your staff will look to you, their employer, for guidance on what to do during this time of financial fluctuations. That doesn’t mean you can, or should, give specific investment advice. But what you can do is help calm frazzled nerves, educate employees on their options, and keep them committed to their long-term financial goals.

“Acknowledge that this is a scary and unpleasant time, but then give your employees the resources they need to feel like they’re on more solid ground,” says Jonathan Bird, a certified financial planner and CEO of Farnam Financial.

Here are six ways you can help your people keep calm and vested.

1. Point to the Past

These times may be unprecedented, but it’s worth mentioning in communications to employees that this isn’t the first time the stock market has tanked, taken retirement accounts with it, and then rebounded. During the global recession of 2009, the average 401(k) balance declined to $52,600. By 2019, it was $297,700, an increase of 466%, according to a Fidelity Investments report. “As uncertain as things feel, what we’re going through is somewhat normal,” Bird says. “We’ve had epidemics and bear markets before. We’re going to get through this.”

No one knows exactly how things will play out from here, but if history is any indication, every bear market eventually ends and it’s usually within a year or two, says Gordon Achtermann, a certified financial planner and founder of Your Best Path Financial Planning.

2. Preach Patience

The best adage to pass along to employees is that retirement accounts aren’t for today, they’re for tomorrow. That’s easier advice to swallow for people who still have decades to go until retirement, but even many soon-to-be retirees won’t necessarily need to draw from their 401(k)s right away. In a volatile market, it’s important to not do anything too hasty or drastic. “Employees should as much as possible stay the course,” Achtermann says. “If their strategy was appropriate, it already took into account the likelihood of bear markets.”

Pulling out of the market is the worst thing people can do. “The problem with jumping out of the market is you have to pick the right time to jump back in; a near impossible task,” Bird says.

3. Tap the Experts

If your company’s employer-sponsored retirement accounts are managed through a large broker, such as Fidelity or Vanguard, now is the perfect time to take advantage of all those little extras they offer. Ask about volatility-related handouts or free portfolio checkups for your employees, Bird says. “An adviser can review an allocation, see if lower-cost funds are available, and rebalance a portfolio,” Bird says. “That can take as little as 5 to 10 minutes, but could add significant upside to a portfolio during a future recovery.”

Your service providers also might offer video meetings where they can share investment advice and take questions from employees. If your company manages your 401(k) program in-house, make sure the retirement committee reviews current investments, shares updates with employees, and documents all decisions in writing. Arming your employees with options and information can make them feel less helpless about their financial future

4. Frame a 401(k) Match Freeze the Right Way

In these tough times, your company may be considering freezing 401(k) matching. During the 2008 recession, that’s exactly what nearly 20% of large companies did. That’s not ideal, but it may be necessary if it helps keep the company afloat or lessens layoffs or furloughs. If that’s the case, make it clear to your employees why the company is making certain decisions. Just as important is setting metrics for when you will return to matching and when (or if) you will make up the lost payments, Achtermann says.

5. Encourage More Investment, When Possible

If your company has reduced employees' hours or salaries, they may have a hard time keeping up with their 401(k) contributions, much less increasing them. Let them know that's OK and they can always re-up their contributions when things are back on more solid ground.

But for those employees who can afford it, now is actually a good time to up their 401(k) contribution. “Remind employees that market declines actually help most of them enormously,” Achtermann says. “You buy more shares when the price is low and fewer when the price is high. Younger employees especially should celebrate that stocks are on sale and keep investing with every paycheck.”

For employees who are closer to retirement, it’s time to tweak their withdrawal strategy, Bird says. That means figuring out how much money they need to take out, when it needs to come out, and from where in the portfolio it will come. “Having this plan lets you remove the emotional element of managing your plan, and gives you positive actions so you don’t become paralyzed by a downturn,” he says. Encourage people to use any employee assistance programs for guidance and clarity, rather than trying to navigate the situation alone.

6. Talk Up Your HSAs and FSAs

To take some of the sting out of tanking 401(k)s, now can be a good time to remind people who have a health savings account (HSA) that any money left in the account when someone turns 65 can be withdrawn for any expense, without penalty. That makes them like a mini retirement account in their own right, which may hearten people who are focused only on their 401(k) balance. And, in the short term, HSAs can be a great way to make tax-deductible contributions for medical expenses or even to act like an emergency cash fund, Bird says. If some of your employees have Flexible Spending Accounts, which allow them to set aside money for medical expenses in a tax-free account, remind them to take full advantage of the money in their accounts since FSAs provide “use it or lose it” benefits.

It’s painful for anyone to see their retirement accounts take a nosedive. As employers, you can help ease your workers’ fears by helping them shape a plan and remember that downturns aren’t forever.

Note to our readers: This information is being made available as a free resource to the public. It is not an endorsement of any of the Finance-Related Resources listed in this article –– financial consultants, planners, services, organizations/associations, websites, tools, lenders, credit unions, or banks. None of the Finance-Related Resources listed have solicited Rally Health to be included, and Rally Health receives no compensation from the Finance-Related Resources mentioned in this article.


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Articles on Rally Health’s website are provided for informational purposes only, as a free resource for the public. They are not a substitute for medical advice, diagnosis, or treatment. Rally Health does not accept solicitations or compensation from any parties mentioned in the articles, and the articles are not an endorsement of any providers, experts, websites, tools, or financial consultants, services, and organizations.