Capital Ideas^™ 
Investment insights from Capital Group

Recent years have brought several shocks to financial markets—from the COVID-19 outbreak in late 2019 to the inflation peak in 2022 to U.S. President Donald Trump’s “Liberation Day” tariff announcement in April 2025. In episodes like these, markets become volatile and retirement plan participants may lapse into indecision or make impulsive choices. 

Similarly, defined contribution (DC) plan investment committees can be stymied—just when resolve is most needed. They may slam the brakes on carefully constructed strategies to improve participants’ retirement outcomes, pause planned upgrades or simply do nothing.

That’s often a missed opportunity to support plan participants better. These crises tend to focus participants on their retirement plan balances and can make them susceptible to rash decisions that risk knocking them off the path to a secure retirement. For that reason, volatile periods can present opportunities to expand employee communications and move forward with adjustments to plan designs that aim to encourage positive participant behavior.

Here are four steps that DC committees can take to help avoid “paralysis” and make the most of volatile periods to help keep participants on track.
 

• Stress test your plan. Take crisis periods as an opportunity to understand how rapid market drawdowns impact participants’ behavior and the investment results of your fund lineup. Monitor data in real time to assess the impact of volatile markets on your employees’ retirement readiness.
  
  
• Forestall participants’ emotional decisions. Reducing contributions, locking in losses and taking out loans against retirement savings are all potentially detrimental actions that employees may be tempted to take during acute market selloffs. In the worst case, these actions can lead to delayed retirements—an outcome that is firmly at odds with the plan sponsor’s goal of helping participants prepare for a secure retirement. Use this time to educate participants on the risks of fear-driven DC plan decisions. Also consider adjustments to get participants back on track, such as changing the plan’s auto-escalation formula.
  
  
• Spotlight the plan’s professionally managed qualified default investment alternative (QDIA), such as a target-date series or balanced fund. Demonstrate and communicate the value of this option to participants. But don’t leave the QDIA on autopilot. Periodically review your expectations of your QDIA manager and conduct a detailed analysis of the QDIA vehicle to optimize risk and return.
  
  
• Manage fiduciary responsibilities. Measures that may ultimately improve outcomes for your participants may also be part of your fiduciary responsibility. Proactively explore revamping your investment lineup. Look beyond the individual funds and examine how participants are using them. Be thoughtful about ways to support participants in maintaining broad diversification that can position them for resilience during market drawdowns. 
   

Tips for success
 

• Start now. Don’t wait for a market shock to act. The longer you delay adjusting your plan, the less time those adjustments may work for the benefit of your participants. Delays may hurt both participant outcomes and employee productivity.
  
  
• Lead. When employees are stressed, baby steps may not meet the need for change. They may just delay success. Your participants are looking to you for bold leadership.
  
  
• Provide guidance. Being proactive helps reassure participants and may help employers retain talent during times of uncertainty.
  
  
• Avoid paralysis. Leverage consultants to help jump-start committee initiatives. Consultants can help prioritize projects to tackle.