Turning a Molehill into a Mountain-401(k) and the Media

Last weekend I was confronted by the power of the media to shape public opinion. It was scary. On Saturday I attended a reunion of employees of my former employer. Because of what I do the conversation turned to the 401(k) system. Every one of the 80 people there was convinced 401(k) participants had begun drawing down their 401(k) assets. Their conclusion was based on TV and print reporting about last week’s Fidelity Investments release. Virtually every media outlet represented modest year-over-year changes as a significant shift in behavior. I did several interviews about the report. Only once was my point that nearly 98% of 401(k) participants are not taking hardship withdrawals included for balance.

The reality is that in a period of uncertainty, if not outright fear, 401(k) participant behavior is incredibly stable. Of course, there have been changes at the margins. According to Fidelity the number taking hardship withdrawals has increased year over year to 2.2% from 2.0% and those with an outstanding loan balance up from 19.9 to 21.9%. In other words hardly any participants take hardship withdrawals and only somewhat more than a fifth have an outstanding plan loan. The Fidelity numbers were presented as if the sky were falling when in fact they suggest the opposite. For example the report states "The average 12 month hardship amount requested was just over $6,000. While higher than the same period last year, the number is consistent with the overall average amounts requested over the past 10 years." The report also points out that those with loans continue to make contributions—not something many would expect and a very positive attribute of the 401(k) system. I could go on.

My point is not that the 401(k) system is strong even in these economically and emotionally tough times. It's that media spin can convince people that a trickle is a tsunami. It's something worth thinking about.