With all that’s happening on the political and economic front, retirement saving remained a key focus through the first quarter of 2022. New Investment Company Research (ICI) finds that defined contribution (DC) plan participants continued to save in their retirement plans at work.
“Withdrawal activity likely reflects the impact of ongoing financial stresses relating to the COVID-19 pandemic”
ICI’s study “Defined Contribution Plan Participants’ Activities, First Quarter 2022” tracks contributions, withdrawals, and other activity in 401(k) and other DC retirement plans, based on DC plan recordkeeper data covering more than 35 million employer-based DC retirement plan participant accounts as of March 2022.
“Even as stock values declined at the start of 2022, DC plan participants generally stayed the course and refrained from changing asset allocations,” said Sarah Holden, ICI senior director of retirement and investor research, said in a statement. “Furthermore, the data suggest that through the first quarter of 2022, retirement savers continued contributing to DC plans.”
The recordkeeper data indicate that DC plan participants remain committed to saving and investing. A preliminary estimate indicates that only 0.9% of DC plan participants stopped contributing during the first quarter of 2022, compared with 0.8% in the first quarter of 2021, 1.4% in the first quarter of 2020, and 2.7% in the first quarter of 2009.
DC plan withdrawal activity remained low
In the first quarter of 2022, 1.8% of DC plan participants took withdrawals, compared with 2.2% in the first quarter of 2021.
Levels of hardship withdrawal activity also remained low. Only 0.9% of DC plan participants took hardship withdrawals in the first quarter of 2022, compared with 0.6% in the first quarter of 2021.
Withdrawal activity likely reflects the impact of ongoing financial stresses relating to the COVID-19 pandemic, although the penalty relief and increased flexibility in plan withdrawals under the Coronavirus Aid, Relief, and Economic Security (CARES) Act (enacted March 27, 2020) were available only during 2020.
Most DC plan participants stayed the course
In the first quarter of 2022, 4.7% of DC plan participants changed the asset allocation of their account balances, slightly lower than 5.5% in the first quarter of 2021.
In the first quarter, 3% changed the asset allocation of their contributions, a bit lower than 3.9% in the first quarter of 2021.
Participant loan activity remained about the same
At the end of March, 12.5% of DC plan participants had loans outstanding, compared with 12.5% at year-end 2021, and 14.8% at year-end 2020. It is possible that the availability of coronavirus-related distributions (CRDs) in 2020 has resulted in reduced loan activity.
Additionally, a DC plan participant is no longer required by law to first take a plan loan (in plans with a loan option) prior to taking a hardship withdrawal, though some plans may retain this requirement.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
