The stock market’s precipitous slide as the novel coronavirus spread across the globe has been jarring for many with money tied up in the market. Millions of Americans have seen chunks of their 401(k) retirement plan investments eaten away as the Dow Jones Industrial Average has fallen more than 25% in less than a month.
Ed Murphy, the CEO of Greenwood Village-based Empower Retirement, a company that manages the retirement plans of nearly 9.5 million Americans, is preaching steadfastness amid the volatility. But he’s also reaching out on behalf of retirement account holders to encourage federal officials to loosen rules should people need to dip into their nest egg accounts for some economic relief as COVID-19 continues to rock the globe.
On Tuesday, Murphy sent a letter to U.S. Treasury Secretary Steve Mnuchin and Charles Rettig, commissioner of the Internal Revenue Service. In the letter, the CEO referenced special steps Congress took in 2016 and 2017 to allow people living in designated disaster areas to more easily withdraw emergency money from their retirement funds. The relief measures, according to Murphy’s letter, included:
- waiving the 10% additional tax on early withdrawals
- including qualified, disaster-related withdrawals in income over a three-year period
- allowing people to repay early retirement withdrawals within three years
“We believe similar relief would be appropriate as Americans deal with the hardships brought on by the COVID-19 crisis,” Murphy wrote in the letter. “We would respectfully request that Treasury and IRS provide any guidance regarding any relief currently available and work with Congress to provide any further relief as needed.’
The letter was also sent to Congressional offices, according to Empower officials.
While he is advocating for more options, Murphy and his employees are cautioning individuals and institutions whose money they handle not to overreact. As the nation’s second-largest retirement services provider with business in all 50 states, Murphy views Empower as a good thermometer for measuring the temperature of retirement account holders nationwide.
“I wouldn’t say we have seen a tremendous amount of panic on behalf of customers,” Murphy said, crediting his workers for their work at a challenging time. “It ebbs and flows, but suffice it to say that the interaction we have with our customers is probably up 25% over norm. They’re seeking account information. They’re seeking info about options.”
Murphy has cautioned people, particularly younger workers, from pulling out of the equities market completely and converting their accounts to all-cash with aims to jump back in when the market starts trending upward again. He noted that while he is expecting a slower, “U-shaped” economic recovery across the country after the crisis, the market moves faster and he expects a “V-shaped” recovery with a steep upward spike to mirror downward plummet.
“The idea of taking that position, moving to 100% cash with the hope that you’ll be able to time the market and the capture most of the upside if not all the upside, that has proven to be very difficult to accomplish,” he said.
Marti Awad is a founding partner of Cherry Creek-based Cardan Capital Partners, a boutique wealth management firm. Unless and until Congress rolls back rules penalizing people for early retirement deductions and lengthens the amount of time they can avoid taxes on loans they may take out from those accounts, she advises people go out of their way to avoid touching the money they have there, using regular savings first.
“If possible, draw funds from taxable accounts and if you must sell assets, select those that have not dropped as much in value like bonds,” Awad wrote in an email. “Try scaling back spending first. And look for other sources of short term cash.”
She even suggested refinancing a home at a new low-interest rate rather than upsetting the deferred tax earning potential of retirement accounts. Awad also called for people to have some perspective amid a nationwide crisis.
“A lot of people who are going to be hurt the most by this are people who don’t even have 401(k)s,” she said. “Lower-income folks who don’t that don’t even have the luxury of tapping into savings.”