Despite uncertain market conditions during the COVID-19 pandemic, Americans continued to save for retirement through DC plans, according to first quarter data by the Investment Company Institute.
Preliminary estimates in ICI’s “Defined Contribution Plan Participants’ Activities, First Quarter 2020” show that only 1.4% of DC plan participants stopped contributing to their plans in the first quarter of 2020. This is compared with 0.9% in the first quarter of 2019 and 2.7% in the first quarter of 2009, which is notable as a comparison to another time of financial market stress.
The study tracks contributions, withdrawals and other activity, based on DC plan recordkeeper data covering more than 30 million participant accounts in employer-based DC plans, which ICI has been doing since 2008.
Most DC plan participants also stayed the course in their asset allocations, according to the organization’s data. Though stock values declined during the first three months of the year (about 20%), only 6.2% of DC plan participants changed the asset allocation of their account balances in the first quarter of 2020—slightly higher than the activity seen in the first quarter of 2019 (4.2%). ICI observes that this is also slightly higher than the first quarter of 2009, when 5.5% of DC plan participants changed their asset allocations.
Additionally, the study notes that only 4.1% changed the asset allocation of their contributions in the first quarter of 2020—which was slightly higher than the 2.9% seen in the first quarter of 2019, but lower than the 7.3% in the first quarter of 2009.
Withdrawals and Loans
While it was slightly higher than the activity observed in the first quarter of 2019, withdrawal activity for DC plans remained low. According to the data, only 1.8% of DC plan participants took withdrawals in the first quarter of 2020, compared with 1.4% in the first quarter of 2019 and 2.7% during the same period in 2009.
Levels of hardship withdrawal activity also remained low, with only 0.8% of DC plan participants taking hardship withdrawals during the first quarter of 2020, compared with 0.5% in the first quarter of 2019 and 1.2% in the first quarter of 2009.
DC plan participants’ loan activity edged up in the first quarter of 2020, but only slightly. At the end of March 2020, ICI found that 16.3% of DC plan participants had loans outstanding, compared with 16.1% at year-end 2019 and 15.9% at end of March 2019.
One caveat: It is unlikely that the CARES Act, enacted on March 27, had time to have a significant impact on DC plan participants’ activities in the first quarter of 2020, since plan sponsors had a limited time frame to implement the optional provisions before the end of the quarter. Still, the study notes that some individuals may have taken hardship withdrawals in anticipation of the expected suspension of the 10% early withdrawal penalty in relation to the COVID-19 pandemic.
