Despite ongoing challenges bought about by the pandemic, 2021 withdrawal and contribution data indicate that essentially all DC plan participants continued to save in their retirement plans at work.
Only 2.2% of DC plan participants stopped contributing in 2021, compared with 2.3% in 2020 and 3.4% in 2009, according to the Investment Company Institute’s Defined Contribution Plan Participants’ Activities, 2021 study. And it is possible that some of these participants stopped contributing simply because they reached the annual contribution limit, the report notes.
Most DC plan participants also stayed the course with their asset allocations as stock values generally rose throughout the year. In 2021, 9.1% of DC plan participants changed the asset allocation of their account balances, slightly lower than 10.6% in 2020 and 11.8% in 2009.
In 2021, 5.3% changed the asset allocation of their contributions, a bit lower than the 6.3% of participants in 2020 and much lower than the 10.5% in 2009. ICI notes that, in this period, stock prices generally rose on net, with the S&P 500 total return index up 28.7% in 2021.
Overall, DC plan assets represented more than a quarter (28%) of the total retirement market and about one-tenth of U.S. households’ aggregate financial assets at year-end 2021.
Prepared by the ICI’s Sarah Holden, Daniel Schrass and Elena Barone Chism, the study tracks contributions, asset allocations, withdrawals and other activity in 401(k) and other DC retirement plans, based on DC plan recordkeeper data covering more than 35 million participant accounts in employer-based DC plans as of December 2021.
Withdrawal and Loan Activity
DC plan withdrawal activity remained low in 2021, although it was slightly higher than the activity observed in recent years, the report notes. In 2021, 4.1% of DC plan participants took withdrawals, compared with 3.8% in 2020 (as the pandemic hit the U.S.), 3.9% in 2019 and 3.1% in 2009 (another time of financial market stress).
Levels of hardship withdrawal activity also remained low. Only 2.1% of DC plan participants took hardship withdrawals in 2021, compared with 1.4% in 2020, 1.9% in 2019 and 1.6% in 2009.
ICI observes that withdrawal activity likely reflects ongoing financial stresses relating to the pandemic, although the penalty relief and increased flexibility in plan withdrawals under the CARES Act enacted in March 2020 are no longer available in 2021. In 2020, recordkeepers identified 5.8% of DC plan participants taking coronavirus-related distributions (CRDs).
DC plan participants’ loan activity edged down in 2021. As of the end of December 2021, 12.5% of DC plan participants had loans outstanding, compared with 14.8% at year-end 2020 and 16.1% at year-end 2019.
“It is possible that the availability of CRDs in 2020 has resulted in reduced loan activity,” the ICI further observes. In addition, DC plan participants are no longer required by law to first take a plan loan (in plans with a loan option) prior to taking a hardship withdrawal, though some plans may retain this requirement, the report notes.