Undeterred by the COVID-19 economic downturn, Americans overwhelmingly continued saving for retirement through defined contribution plans during the first three quarters of 2020.
According to the Investment Company Institute’s “Defined Contribution Plan Participants’ Activities, First Three Quarters of 2020,” preliminary estimates indicate that only 2.2% of DC plan participants stopped contributing to their plans in the first three quarters—consistent with the majority of the 12 years for which ICI has tracked these data. That compares with 1.9% in the first three quarters of 2019, and 5% in the first three quarters of 2009—another time of financial stress.
For context, after falling about 20% in the first quarter of 2020, the S&P 500 total return index worked its way up, ending the third quarter up 5.6% from year-end 2019.
“The data again show the long-term mindset of retirement savers,” says Sarah Holden, ICI senior director of retirement and investor research. “Even in a year of unprecedented economic volatility and increased financial hardship, savers clearly view their DC account as a special pot of money earmarked for retirement, which is only tapped as a last resort.”
The study, which is based on DC plan recordkeeper data covering more than 30 million participant accounts in employer-based DC plans at the end of September 2020, also shows that withdrawal activity remained low—although it was slightly higher than the activity observed in recent years.
For example, ICI reports that in the first three quarters of 2020, only 3.4% of DC plan participants took withdrawals, compared with 3.3% in the first three quarters of 2019 and 2.6% in the first three quarters of 2009.
Levels of hardship withdrawal activity also remained low. Only 1.2% of DC plan participants took hardship withdrawals during the first three quarters of 2020, compared with 1.6% in the first three quarters of 2019 and 1.3% in the first three quarters of 2009. ICI further notes that hardship withdrawal activity since 2019 may reflect increasing awareness of expanded hardship withdrawal availability from the Bipartisan Budget Act of 2018 and the onset of financial stresses relating to the COVID-19 pandemic.
Additionally, the study notes that most DC plan participants stayed the course with their asset allocations despite high stock market volatility during the first quarter of 2020. In the first three quarters of 2020, ICI found that 9.5% of DC plan participants changed the asset allocation of their account balances. This was slightly higher than the 7.1% who did so in the first three quarters of 2019 but lower than 9.9% in the first three quarters of 2009 as the stock market started to recover from the global financial crisis.
Regarding asset allocations of their contributions, the ICI found that 5.6% of participants changed their allocations in the first three quarters of 2020—slightly higher than 4.2% in the first three quarters of 2019 but lower than the 9.8% who did so in the first three quarters of 2009.
Concerning CARES Act activity, the recordkeepers surveyed identified 4.4% of DC plan participants as taking Coronavirus-related distributions (CRDs) during the first three quarters of 2020.
DC plan participants’ loan activity edged down in the third quarter of 2020, perhaps partly reflecting the use of CRDs instead of loans, the ICI notes. At the end of September 2020, 15.4% of DC plan participants had loans outstanding, compared with 15.6% at the end of June 2020, and 16.3% at the end of March 2020.