As the bull market approaches its 10th year, retirement plan specialists are essentially offering plan sponsors and plan participants some of the same tips the National Park Service suggests for tourists who encounter a bear: Stay calm, don’t run, and remember that a sudden movement may trigger an attack.

Dumping equities from a 401(k) plan when a bear market is pending—or when it’s in progress—is a sure way for plan participants to sabotage their retirement savings efforts, caution the retirement experts. But continuing to invest too aggressively can also be a problem. The smartest strategies, they say, are to identify retirement goals, maintain a diversified portfolio and get educated.

Gerald Wernette, a principal and the director of retirement plan consulting at Rehmann Financial in Farmington Hills, Mich., is hearing varying levels of concern from plan sponsor clients and is talking a lot to them about menu construction.

“It isn’t just fees and it isn’t just performance,” he says. “It’s more trying to look behind the curtain at what’s going on inside these funds and how much risk they’re taking to achieve performance.” He’s also discussing how funds are married to underlying indexes and how they can get tugged more than expected if the market starts to head south.

“That’s the kind of stuff your typical plan sponsor isn’t thinking about, let alone really understanding,” says Wernette. “I think there is a ton of opportunity out there for investment advisors to deliver value if they’re looking beyond what’s on the surface.”

During the 2008 crisis, 2010 target-date funds lost between 8% and 43% of their value, he says. That was a dramatic spread, he says, and a big deal for a lot of people who thought they were ready to retire. Rehmann Financial is now putting a lot more effort into evaluating target-date funds, he says, by back-testing them, by looking at the gradual change in their allocations closer to the owner’s retirement (in other words, the fund’s glide path) and by looking at how much risk fund managers will be taking at different points in time.

“I need [a fund manager] that’s going to be a consistent batter—lots of singles, doubles, a few triples, and if they get a home run every once in a while, that’s great, says Wernette. “But I can’t have them striking out.” 

Another reason plan sponsors and advisors must pay attention to fund menus (and the funds used as default options), he says, is that the participants might stay inside their 401(k) plans after their retirement date. He’s seeing more retirees doing that.

Some new clients he’s met with offer plan lineups that are too aggressive; others have been too conservative and have missed the run-up in the market. “I feel nervous and kind of bummed on both ends of the spectrum,” says Wernette. Plan sponsors and advisors must pay closer attention to the employees to determine what their real risks are, how much they can handle and what menu options best serve them.

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