Here’s How DC Plan Participants Acted During the First Half of 2020

Given the far-reaching health, economic and workplace changes that have occurred so far during 2020, defined contribution plan participants have been remarkably disciplined.  

 

According to the Investment Company Institute’s Defined Contribution Plan Participants’ Activities, First Half 2020 report, Americans continued to save for retirement through their DC plans and there has been only a slight increase in withdrawal activity, despite economic stresses brought about by the COVID-19 pandemic. 

The ICI’s study tracks contributions, withdrawals and other activity in 401(k) and other DC retirement plans, based on DC plan recordkeeper data covering more than 30 million participant accounts in employer-based DC plans at the end of June 2020. This edition also tracks Coronavirus-related distributions (CRDs) to provide insight into financial activity related to the pandemic.

 

Preliminary estimates of the latest recordkeeper data indicate that only 2% of DC plan participants stopped contributing to their plans in the first half of the year, which is a typical rate across a majority of the 12 years ICI has tracked this data. That compares with 1.3% in the first half of 2019 and 4.6% in the first half of 2009, during the last major economic downturn. 

 

While the levels of reallocation activity are slightly higher compared to a year earlier, most DC plan participants stayed the course in their asset allocations despite stock market volatility at the end of the first quarter. 

 

The ICI reports that in the first half of 2020, 8.3% of DC plan participants changed the asset allocation of their account balances, compared with 6.1% during the first half of 2019 and 7.7% during the first half of 2009. 

 

Regarding contributions, only 5% of DC plan participants changed their asset allocation, compared with 3.6% in the first half of 2019 and 9.3% in the first half of 2009.

 

 

“We see a slight increase in withdrawal activity following the onset of economic volatility and hardship, but the increase is much smaller than you might expect, given the severity of the COVID-19 economic downturn,” explains Sarah Holden, ICI senior director of retirement and investor research, and coauthor of the report. “These assets represent a pot of money that savers have earmarked for retirement and they have consistently demonstrated that they generally stay the course to reach that financial goal, even during challenging economic situations.”

 

In fact, ICI’s data shows that in the first half of 2020, only 2.8% of DC plan participants took withdrawals, compared with 2.5% in the first half of 2019. Levels of hardship withdrawal activity also were low, with only 1.1% of DC plan participants taking hardship withdrawals during the first half of 2020—the same share of participants as in the first half of 2019.

 

The recordkeepers surveyed identified 2.9% of DC plan participants as taking Coronavirus-related distributions during the first half of 2020, under the CARES Act provisions that were enacted in late March. 

 

DC plan participants’ loan activity also edged down in the second quarter, according to ICI’s study. At the end of June 2020, 15.6% of DC plan participants had loans outstanding, compared with 16.3% at the end of March 2020 and 16.1% at year-end 2019. This may reflect the use of CRDs instead of loans, according to the ICI.