In Times of Stress, Timely Communications Make a Big Difference

New data shows the education and guidance firms are providing is helping individuals to stay the course.

Because so many 401(k) investors moved out of the market in the Great Recession of 2008-2009, John Hancock Retirement decided that with the coronavirus roiling the markets starting in February, it would use email, its call center and its website to deliver a message to participants about the importance of staying the course, Lynda Abend, chief data officer, tells PLANADVISER.

“From what we learned in the 2008-2009 downturn, we wanted to get ahead of this and support participants with education and guidance,” Abend says. “Towards the end of February, when the markets started dropping, we started delivering content in all the channels we have—email, call center and website—to help folks understand the difference between short-term and long-term volatility and the importance of saving for the future.”

In March, only a small percentage of participants made an investment change, and it was primarily to move into stable value, Abend says. This mirrored what happened at the outset of the Great Recession, she says. But, in April, these participants started moving back into equities.

“The education and guidance we are providing is helping individuals to stay the course,” Abend says.

As far as distributions are concerned, following the passage of the Coronavirus Aid, Relief and Economic Security (CARES) Act at the end of March, participants started to withdraw money from their 401(k)s, Abend notes. The coronavirus-related distributions (CRDs) created under the CARES Act can be drawn from an employer-sponsored retirement plan or from individual retirement accounts (IRAs) in any amount up to $100,000. Under the terms of the CARES Act, the normal 10% penalty tax levied on early plan distributions by the IRS is waived.

“Most have opted for the [CRD], which has favorable tax treatment and can be repaid over the course of three years,” Abend says. “Overall, we are seeing good behavior from participants.”

Drilling down into John Hancock Retirement’s recordkeeping data, only 3% of participants decreased their contribution rate in April. However, coronavirus-related distributions were up 200% in April from the month before.

The number of participants who took loans from their 401(k) decreased in April, but the average loan amount grew by 7% to $12,433.