Battling Recession Jitters

April 8, 2008
Randy Watha and Scott Cameron have never been busier. As retirement plan specialists with Diversified Investment Advisors, their job is to educate employees and answer questions about saving for retirement at their client, Trinity Health Services.

    And these days, employees at the Novi, Michigan-based health care provider have a lot of concerns about their retirement savings. Considering 40 percent of the company’s 55,000 employees are in Michigan—which has been hit hard by a recession—many are wondering if they can really save for retirement when they have more immediate financial concerns.

    "They need hand-holding and reassurance today more than ever," says Watha, who along with Cameron is part of a team of 16 retirement specialists at Diversified Investment Advisors who visit Trinity Health’s 44 hospitals across the country. Watha and Cameron are based in Ann Arbor, at Trinity’s St. Joseph Mercy Health System.

    In February, Watha and Cameron’s team had 1,004 appointments with Trinity Health employees, up from 841 a year ago.

    As talk of an economic recession sweeps the country, more companies are dealing with employee concerns about saving for retirement. Many workers are thinking twice about contributing to their 401(k) plans. Some are taking out loans while others are moving assets to more conservative investments, even if they have 30 years before they retire.

    As a result, an increasing number of employers are working with their plan providers to proactively address employee concerns and keep them thinking long term, experts say.

    "When employees react to market volatility, they tend to sell low and buy high and they miss a lot of opportunity," says Pam Hess, director of retirement research at Hewitt Associates.

    In January, 401(k) plan participants transferred $1.75 billion, representing 1.44 percent of participants’ total plan balances, from equities to fixed income. This marks the highest movement to fixed income since 1997, according to Hewitt.

    At Trinity, Watha and Cameron have their work cut out for them. In 2007, the percentage of employees who decreased the amount they were deferring to their 401(k) plans jumped by 81 percent. In Michigan, the number of employees decreasing their deferrals climbed by 131 percent.

    At the same time, loans rose slightly from 2,662 to 2,869 for all of Trinity, and from 1,574 to 1,627 for just its Michigan employees. That loans were relatively flat and overall enrollment is slightly up is good news and a sign that its communications efforts to employees are effective, says Silvia Frank, manager of defined-contribution plans at Trinity.

    Seventy-seven percent of eligible employees are enrolled in the 401(k) plan, up from 75 percent in 2006. "Our goal is to stay at least at 75 percent," she says.

    Watha and Cameron are part of the support that Diversified Investment Advisors, a Purchase, New York-based financial services company, offers to Trinity Health as its 401(k) plan provider.

    Frank meets quarterly with Watha and Cameron to assess plan participant statistics and discuss where they might need to be proactive with regard to communications.

    "We look at where our resources should be focused," she says. "For example, if participation rates at one hospital are not increasing as we think they should be, we will address it."

    After one of these meetings last year, Trinity sent a personalized mailer to all 401(k) plan participants who had stopped contributing to the 401(k) plan. The mailer emphasized how if employees just contributed $1.43 every day to their plans, they would have a little more than $500 in a year.

    To reach as many employees as possible, Watha and Cameron e-mail Trinity staff members to advise them about site visits and invite them to make appointments.

    "We try to leave gaps for walk-ins," Cameron says.

    The specialists also set up "cafeteria days," where employees can chat during lunch breaks, and organize more formal seminars around topics like estate planning.

    "We have been doing this since 2002; people know us as Randy and Scott, not just voices on the phone," Cameron says. "It helps to reassure them."

    While many employers are trying to reach out to employees and address concerns, few organizations have on-site reps available, Hess says.

    "We are seeing more personalized messages through e-mail and we are doing more webcasts for clients," Hess says. Webcasts are an effective way of achieving live interaction with plan participants, she says.

   But many employers have large segments of their workforces who don’t have access to the Internet, making timely communications almost impossible, says Linda Garcia, vice president of human resources at Rooms To Go, a Seffner, Florida-based furniture retailer.

    "We have a lot of employees that work in our stores and warehouses and they don’t have access to e-mail," Garcia says.

    Like Trinity, Rooms To Go is in a market segment that’s in a recession. Garcia and her team are struggling with walking that fine line between helping its 6,500 employees think long term while acknowledging that some of them have pressing financial concerns.

    In fact, two of Rooms To Go’s sales representatives recently resigned so that they could access their 401(k) plans, Garcia said.

    In such dire situations, there’s little an HR executive can do, Garcia says. But generally she tries to make sure that when employees come to her about taking out a loan, they understand the consequences, she says.

    Plan sponsors and providers must be sympathetic to employees’ needs versus wants, Cameron says. While they want to make sure workers understand the implications of taking out a loan from their retirement savings, some workers have good reason for needing that money immediately.

    But for employees who just want to increase the amount of cash available, Cameron and Watha try to convince them not to stop contributing to their plans. "A lot of people think they will go back to contributing after a year, but often they don’t do that."

    Because of the economic downturn, Rooms To Go has delayed plans to automatically enroll employees into its 401(k) plan. "We have warehouse workers who make $10 to $12 an hour, and if they see $50 out of their paychecks, they are going to really feel that," she says. "We may look at it again a year from now."

    Some companies don’t want to start a conversation about stock-market volatility with plan participants if they aren’t hearing any concerns from them.

    "We don’t want to cause an issue if there isn’t one," says Laurie Augustyn-Fier, director of compensation benefits and HRIS at NES Rentals, a Chicago-based provider of construction and industrial rental equipment.

    Some plan sponsors are wary of communicating about a recession for fear of being sued, says Ethan Kra, chief actuary for retirement at Mercer.

    Companies may think if they tell employees there is going to be a recession and there isn’t one, employees might come back and say the company misled them, he says. "It’s dangerous in this litigious society," Kra says.