DC plan participant loan activity was slightly lower than a year earlier, but is it more a case of when than why?
According to a new report by the Investment Company Institute (ICI), two factors seem to be influencing DC plan participants’ loan activity: reaction to financial stresses and a seasonal pattern. The report notes that, likely in response to the financial crisis, the percentage of DC plan participants with loans outstanding rose from the end of 2008 (15.3%) through 2011 (18.5%), a pattern of activity similar to that observed in the wake of the bear market and recession earlier in the decade.
The report noted that the share of DC plan participants with loans outstanding leveled out in 2012 through 2014, perhaps reflecting loans supporting resumed consumer spending or home purchases. As of September 2015, 17.6% of DC plan participants had loans outstanding, compared with 18.0% a year earlier. That said, loan activity continues to remain elevated compared with 2008, when 15.3% of DC plan participants had loans outstanding.
ICI notes that, historically, quarterly loan activity appears to have a seasonal pattern: The first quarter of the year tends to have lower percentages of DC plan participants with loans outstanding compared with later quarters.
Other Data
The vast majority of DC plan participants continued contributing to their plans; only 2.5% of DC plan participants stopped contributing in the first three quarters of 2015, compared with 2.7% in the first three quarters of 2014.
Most DC plan participants stayed the course in their asset allocations, as stock values declined over the first nine months of the year. In the first three quarters of 2015, 8.3% of DC plan participants changed the asset allocation of their account balances and 6.8% changed the asset allocation of their contributions. These levels of reallocation activity were slightly higher than the reallocation activity observed in the first three quarters of 2014 (5.6%).
DC plan withdrawal activity remained low and was in line with the activity in the first three quarters of 2014; 2.9% of DC plan participants took withdrawals in the first three quarters of 2015, compared with 3.1% during the first three quarters of 2014. Only 1.3% of DC plan participants took hardship withdrawals during the first three quarters of the year, similar to the pace observed in the same time frame a year earlier.
Loan activity was slightly lower than a year earlier, though still elevated compared with seven years ago. At the end of September 2015, 17.6 percent of DC plan participants had loans outstanding, compared with 18.0% at the end of September 2014.
According to ICI, assets in all DC plans represented more than one-quarter of assets in the total retirement market and accounted for almost one-tenth of U.S. households’ aggregate financial assets at the end of the third quarter of 2015.
