New data from Ascensus reveals how employers and 401(k) plan participants changed their savings behaviors over the course of the COVID-19 outbreak.
Serving as an early baseline for plan contribution and withdrawal behaviors in response to the pandemic and subsequent passage of the CARES Act, the firm’s data shows that only 1.4% of plans stopped contributions between January and May. But small business plans with 25 or fewer savers appear to have been much more significantly impacted by the pandemic.
Ascensus reports in its “State of Savings: June 2020” study that from March to May these small businesses stopped contributions—including both employer and saver contributions—to their retirement plan at five times the rate of businesses with more than 100 retirement savers. Not surprisingly, the industries with the most notable stoppage in contributions were health care and social assistance, accommodation and food service, and retail trade. (The analysis excludes plans with over 500 employees in order to assess how temporary business closures, employment changes and related income changes have impacted these employers and employees, the firm notes.)
As of the end of May, 11.8% of employers stopped or decreased their retirement plan matching contributions. On a positive note, however, the relatively small percentage of employers that reduced their match at the start of the pandemic have already begun to revisit that decision, Ascensus notes. The firm’s data shows that 7.5% of employers that had decreased their match in or after March had returned to their previous matching levels by the end of May.
CARES Act Adoption
Employer adoption of Coronavirus-related distributions (CRDs) and expanded loan options offered through the CARES Act also remains relatively low across all plans, although the rate grew steadily through the end of May, with adoption of loans lower than that of CRDs, Ascensus further reports.
According to the data, 11.7% of employers have adopted the CRD option, while 7.5% adopted the expanded loan option. That said, there is a sizeable difference in the CRD adoption rates between large and small plans. The data shows that more than 35% of larger plans with over 100 savers adopted CRDs, compared to only 3.8% of small plans with 25 or fewer savers.
Encouragingly, more than 93% of retirement savers made no change to their savings rates, illustrating the positive value of automatic payroll deduction. Additionally, most retirement savers aren’t tapping into existing savings and are making efforts to “stay the course,” the firm notes.
In fact, from January through May 2020, only 5.3% of savers stopped contributing, including 1.3% who discontinued their contributions and those who were furloughed or terminated, the firm notes. In addition, only 1.8% reduced their savings rate, while 3.8% increased their savings rate.
Ascensus’ analysis is based on traditional retirement plans on the firm’s platform (excluding Balance Forward, Individual(k), and SEP and SIMPLE IRA), with benchmarking data through May 31, 2020.
Ascensus’ findings are consistent with a recent snapshot survey by the Plan Sponsor Council of America that examined how plan sponsors and participants have responded to COVID-19 and the new CARES Act options.
