With 2020 now (thankfully) disappearing in the rearview mirror, we’re starting to get a better look at how 401k plan sponsors and participants behaved in response to the COVID-19 pandemic that dominated the turbulent year.
According to a newly released 2020 year-in-review report from T. Rowe Price, almost one in 10 (9%) of 401k plan participants (in plans with at least $25 million in assets) used at least one CARES Act provision last year.
The report, “Coronavirus: Year-in-Review,” focuses on reactions of plan sponsors and participants to the coronavirus-impacted environment, with data collected from the start of the pandemic through Dec. 31, 2020.
It found that while the pandemic caused market volatility and unprecedented changes to business operations, most participants stayed the course and did not make a change to their investments.
“These insights give plan sponsors an opportunity to examine not only their actions but the behavior of their participants during this unprecedented time,” said Josh Dietch, head of Retirement Thought Leadership at T.Rowe Price. “This can inform actions plan sponsors can take to best support participant needs and to help improve their long-term retirement savings outcomes.”
Among the key participant highlights, the report found that 23% of the participants plan on repaying their Coronavirus Related Distribution (CRD), although less than 1% have done so thus far. This percentage is expected to rise, and 55% of plans that offered CRDs are now offering participants the ability to pay back those distributions.
This contrasts somewhat with findings from a recent SimplyWise Retirement Confidence Index, which found that 57% of people who took a CARES Act distribution do not plan to pay it back while 43% do not plan to pay it back.
The T. Rowe Price report also found that 68% of plans with assets greater than $25 million adopted at least one CARES Act Provision, while just 20% of plans with less than $25 million in assets adopted at least one provision. And 45% of plans that changed employer contributions reinstated them as of January 2021.
While even assertive steps to reduce the financial impact of CRDs and plan loans can leave savings gaps, better savings behavior may provide substantial increases to retirement savings balance by age 67. Ultimately, the report said there is a correlation between the size of the CRD and/or loan relative to the participant’s effective savings rate and income.
Participants seek out education
Additionally, T. Rowe Price saw a shift in participant behavior when it comes to financial education. Participants are now seeking out and consuming more digital education. T. Rowe Price noted a rise in consumption of investment and financial wellness content. Data also spiked in the fourth quarter of 2020 with content related to the election and potential impact on markets.
“While the CARES Act provisions offered critical assistance to participants who experienced financial challenges in 2020, it is important to evaluate the long-term impact of these decisions,” said Kevin Collins, head of Retirement Plan Services at T. Rowe Price. “Plan sponsors should focus on educating and helping participants recover through financial wellness programs and consider strategic plan design solutions to support future financial health.”