Even with a pandemic, 401k participants appear disciplined and consistent in saving for retirement. The Investment Company Institute finds that defined contribution (DC) plan participants’ contribution activity remained strong through the first three quarters of 2021.
“DC plan withdrawals in the first three quarters of 2021 remained low, but slightly higher than activity observed in recent years.”
The latest recordkeeper data indicates plan participants remain committed to saving and investing. Only 1.2% of DC plan participants stopped contributing to their plans in the first three quarters of 2021, compared with 2.2% in the first three quarters of 2020, and 5% in the first three quarters of 2009 (another time of financial market stress).
“Despite the economic hardships brought on by the lingering pandemic, the long-term mindset of retirement savers continues to serve them well,” Sarah Holden, ICI senior director of retirement and investor research, said in a statement. “Ongoing contributions indicate that most DC plan participants remain committed to saving for their futures, and few withdrawals help to grow and preserve their nest eggs.”
Other findings include:
- DC plan participants mostly stayed the course with their asset allocations as stock values generally rose during the first nine months of 2021. In the first three quarters of 2021, 8.3% of DC plan participants changed the asset allocation of their account balances, slightly lower than 9.5% in the first three quarters of 2020 and 9.9% in the first three quarters of 2009. In the first three quarters of 2021, 5.2% changed the asset allocation of their contributions, a bit lower than 5.6% in the first three quarters of 2020 and much lower than 9.8% in the first three quarters in 2009.
- DC plan withdrawals in the first three quarters of 2021 remained low, but slightly higher than activity observed in recent years. In the first three quarters of 2021, 3.7% of DC plan participants took withdrawals, compared with 3.4% in the first three quarters of 2020 (as the COVID-19 pandemic hit the United States) and 2.6% in the first three quarters of 2009. Levels of hardship withdrawal activity also remained low. Only 1.6% of DC plan participants took hardship withdrawals during the first three quarters of 2021, compared with 1.2% in the first three quarters of 2020 and 1.3% in the first three quarters of 2009. Withdrawal activity likely reflects the impact of ongoing financial stresses relating to the COVID-19 pandemic.
- DC plan participants’ loan activity edged down in the third quarter of 2021. At the end of September 2021, 13.2% of DC plan participants had loans outstanding, compared with 13.5% at the end of June 2021, and 14.3% at the end of March 2021. This downward trend may partly reflect the use of coronavirus-related distributions (CRDs) instead of loans in 2020, as well as an earlier rule change expanding access to hardship withdrawals.
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.
