401(k) PARTICIPANTS NEED TO REBALANCE

Employer education plays an important role in difficult economic times

CHICAGO (December 17, 2002) - Most 401(k) participants, like other investors, have experienced losses in the stock market over the past two years. Yet declining 401(k) balances have not prompted Americans to spend more time on financial planning for retirement, according to a new survey released today by Mutual of Omaha in consultation with the Profit Sharing/401(k) Council of America (PSCA).

In fact, the survey indicates that 401(k) participants may be spending less time reviewing their plan performance and options than they were two years ago. Approximately 9 percent of respondents indicated spending no time reviewing their 401(k) plan in a typical year, up from only 3 percent in a similar study conducted in 2000.

According to PSCA president David L. Wray, employees need to strike a balance by performing regular maintenance on their plans without being overly involved in making changes. "401(k) plans are long-term investments and employees should not be making frequent changes in their investments," says Wray. "However, it is important that employees not ignore their plans entirely. Annual rebalancing is essential, and unfortunately, many employees are neglecting to do this."

Annual rebalancing of plan investments helps ensure that 401(k) participants maintain a mix of investments that is consistent with their long-term goals. By neglecting to rebalance, employees’ asset allocation will tend to deviate more and more over time from their initial intended mix. Rebalancing also helps achieve a "buy low, sell high" effect.

"Companies need to provide education to their employees that emphasizes the importance of rebalancing," says Wray. "In a bear market, employees may tend to be less confident in general about their investing skills. It is critical that employers provide education that helps keep their employees on track for a successful retirement."

The 401(k) Plan Preferences Study, released today by Mutual of Omaha, collected data via telephone poll of 401(k) participants. The Profit Sharing/401(k) Council of America helped Mutual of Omaha design the survey questionnaire and also provided consulting support on the final report.

The Profit Sharing/401(k) Council of America (PSCA), a national non-profit association of 1,200 companies and their 6 million employees, advocates increased retirement security through profit sharing, 401(k) and related defined contribution programs to federal policymakers and makes practical assistance with profit sharing and 401(k) plan design, administration, investment, compliance and communication available to its members. PSCA, established in 1947, is based on the principle that “defined contribution partnership in the workplace fits today’s reality.” PSCA's services are tailored to meet the needs of both large and small companies with members ranging in size from Fortune 100 firms to small, entrepreneurial businesses.