Behind the Curtain: 401(k) Particpants Ride Out Market Storms

By Randy Myers

Many investors panicked during the stock market downturn that stretched from late 2007 to early 2009, but investors in 401(k) plans proved remarkably unflappable.

In examining the retirement plans T. Rowe Price Group Inc. administers on behalf of clients, it found that the percentage of eligible employees who participated in those plans stayed roughly level from 2008 through 2009, according to Michael Skinner, head of strategic marketing and product manager for the company’s retirement plan subsidiary.

Speaking at the 2010 SVIA Fall Forum, Skinner said less than 45 percent of the nearly two million plan participants his company serves took any action in their retirement accounts over that two-year period. In total, less than 4 percent of participants changed their asset allocation, and they moved less than 2 percent of total plan assets under management into different investment options. Much of the reported change in asset allocation is largely due to overall market movements rather than participant-initiated changes.

In fact, Skinner said, asset allocation statistics for participants in retirement savings plans administered by T. Rowe Price don’t look much different today than they did before the stock market’s upheaval. True, target-date funds now account for about 26 percent of participants’ holdings versus 18 percent in 2007, he said. Nevertheless, much of that increase came at the expense of equities, and most target-date funds have equity holdings, so the change may not be as dramatic as it appears on the surface. Overall, Skinner noted, pure equity funds now account for 35 percent of total plan assets, down from 44 percent in 2007.

Elsewhere, he noted, plan participants trimmed their holdings of money market funds to 12 percent of plan assets at the end of September 2010, down from 16 percent at the end of 2007. They boosted their allocation to bond funds to 7 percent from 5 percent and hiked their allocation to stable value funds to 18 percent from 15 percent. In between those dates, there was a spike in stable value holdings to 23 percent of plan assets at the end of 2008.

Because they did not make dramatic changes to their portfolios, Skinner said, most 401(k) plan participants have seen their account balances improve over the past year and a half as the financial markets have recovered much of their lost ground.