Many older 401(k) plan participants have entered the bear market with most of their plan assets invested in stock.
That point emerged today during a House Education and Labor Committee hearing on the effects of the steep drop in the stock market on employees who participate in defined benefit pension plans and defined contribution retirement plans.
“It’s clear that their retirement security may be one of the greatest casualties of this financial crisis,” Rep. George Miller, D-Calif, chairman of the committee, said today at the hearing. “The current financial and housing crises are stripping wealth from American families at a record rate.”
“Particularly for those workers whose savings were held in too risky a portfolio for their savings goals, or for those who were not well-diversified, these are difficult times,” said Rep. Howard McKeon, R-Calif., the highest ranking Republican on the committee.
Jack VanDerhei, research director at the Employee Benefits Research Institute, Washington, noted that conventional wisdom holds that older workers should shift toward bonds, cash and other conservative asset classes as they near retirement age.
But, in 2006, 27% of the oldest 401(k) participants – participants who were ages 56 to 65 – had 90% or more of their 401(k) assets in stock or stock funds, and another 21% had 80% to 90% of their 401(k) holdings in stock or stock funds, VanDerhei said.