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Quarterly Statements Jar 401(k) Investors


Just days after many of the nation's 401(k) investors learned how much they really lost in the third quarter, new data show a significant shift of money out of stock funds and into more stable options within the company-sponsored retirement plans.

"It's really the result of a lot of plan participants receiving statements for their 401(k) plans in the mail and beginning to see the losses on paper for the first time," said David Castellani, senior vice president at Cigna Retirement & Investment Services in Hartford, Conn., the nation's third-largest 401(k) plan sponsor.

"The reality of seeing their losses there on paper is really driving people nuts," he added.

The 401(k) plans allow employees to save pretax dollars in a variety of investments, often bolstered by matching contributions from the company.

To be sure, 401(k) investors had been gradually shifting more of their plan assets into safer, fixed-income options recently, as the stock market has continued to swing wildly.

But Friday, when stocks came roaring back, 401(k) investors not only continued this trend, they accelerated the pace.

According to Hewitt Associates, an employee-benefits consulting firm that tracks 401(k) transfer activity, investors on Friday moved money within their 401(k) plans at 3 1/2 times the normal rate. And 85% of that money was shifted into safer alternatives, such as so-called stable value funds, money market funds and bond funds.

Over at Cigna, the majority of plan participants received their 401(k) statements in the middle of last week. On Friday and Monday, those investors shifted money around within their 401(k) plans at four times the normal rate.

And 90% of the money that was moved was pulled out of stock funds and put into fixed-income options.

This on days when the Dow Jones industrial average soared 167 points and 101 points, respectively.

Industry executives say it is still far too soon to tell whether this early trading activity is indicative of 401(k) investors in general, or whether it simply reflects the activity of short-term traders.

Despite the jump in trading activity, Hewitt Associates says the amount of money moved still represents far less than 1% of all money invested in the nation's 300,000 401(k) plans.

But if confirmed, this shift out of stocks goes against the best advice of financial planners, who note that the vast majority of 401(k) investors should hold the bulk of their retirement accounts in equities.

Why? Most 401(k) investors are at least a decade away from needing--or being allowed--to pull money out of these tax-deferred retirement accounts. At the same time, they need this money to last for more than a decade, because the average retiree is now expected to live well into his or her 80s.

Since stocks historically return more than any other asset class--on average, about 11% a year--financial planners say investors seeking to grow their money at a rate faster than inflation need equities in their portfolios.

Still, this flight to safety doesn't surprise Dee Lee, president of Harvard Financial Educators in Harvard, Mass.

"Even though people are talking the talk about investing for the long term, when they see [their losses] in black and white, they begin to worry," said Lee, co-author of the book "The Complete Idiot's Guide to 401(k) Plans."

She adds: "The bulk of our 401(k) investors haven't been through bad times. . . . They don't . . . know that if they stay with it, they'll do OK no matter how shaky things look in the short term."

Carol Glickman, an associate with Mercer Investment Consulting, a subsidiary of the consulting firm William M. Mercer in Los Angeles, said she expects the vast majority of investors to sit tight.

"There's just so much apathy in the market," Glickman said. "The fact is people don't make that many changes."

Dan Maul, president of Retirement Planning Associates in Kirkland, Wash., also expects most investors will sit tight. He said he's received only a handful of calls from plan participants he works with.

"My bigger concern is if this continues well into next year," Maul said. "This is the biggest down market we've seen for some time. If it continues for another six, nine or 12 months, I'm not sure how many people will just get depressed and give up."


Times staff writer Paul J. Lim can be reached at

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