(Published September 22, 2008)
After the Dow Jones dropped over 500 points on September 15, I talked to employees and pensioners who were concerned about the effect it would have on their retirement benefits.
Let me start out by saying that I do not believe that we in HR have the responsibility — heck, we don't have any business — counseling employees on how to invest their 401k funds. That's what Fidelity and American Express and TIA-CREFF and all the other plan administrators are for. The best advice in the world can go wrong, and you know what they say about good intentions. But at the same time, I remember some very poor decisions that a lot of people made the last time we had a major drop like this one. We might be able to prevent a few of them this time if we're careful — and only if they ask.
The most important point to remind them of, I think, is that all losses are only paper just now. The knee-jerk reaction that too many people have to this kind of a drop is to sell, and if they do that, then the loss is actualized. It's not for us to tell them how to invest or how to maximize the current opportunity to buy low. But if they ask, I can't see that it would do any harm to remind them that the loss is not realized until after they sell. I wouldn't go any further than that, though.
What you might want to do is take this opportunity to encourage them to look at their portfolios. It's a great time to have them be sure that their choices are properly diversified and within their risk tolerance.
See if your plan administrator is willing to come in and sit down with people one on one. Your employees can schedule meetings with the rep for 20 minutes or so. Most administrators will do that, even for a small company. If you're a large organization, you might even have that done on a regular basis. If your plan administrator is unwilling or unable to send someone in to do face-to-face meetings, it might be time for your employees to meet with their personal tax advisors.
But what you don't want to do is open up your employer to potential lawsuits by providing fiduciary advice when you are not qualified to do so. As tempting as it might be to offer help when your employees are frightened of the consequences of a major drop in the Dow, the only really correct advice you can give is, "I am not a qualified investment counselor. That's who you need to ask your questions of."
Many thanks to Marilyn Van Note for her contributions to this blog.
Bannon is an HR consultant in Marshfield, MA (catherine.bannon@gmail.com). Bannon worked for 10 years in HR management before starting her consulting practice.
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