If less than 20% of the pool is invested in stocks, that leaves 80% in cash, bonds, and similar assets. If stocks crash, and one needs cash, then one can still sell other assets--perhaps at a gain if bonds have risen while stocks decline. But the fund looks in part like a kind of reserve, too. One doesn't expect to spend it down completely. If one can hold stocks for a few years after they have lost value, then that lost value is highly likely to return--and probably increase. On the other hand, if you hold all your assets as cash or cash equivalents, they will almost certainly lose value to inflation. 

This looks like a very reasonable and responsible proposal to me.