As we approach the first anniversary of the CARES Act on March 27, more and more plan sponsor and participant data is becoming available to offer a closer look at coronavirus-related distributions (CRD) that occurred in 2020.
Principal Financial Group’s recently released 2020 Year in Review provides just such a look.
Generally, Principal found most plan sponsors and participants largely stayed the course through market volatility and the CARES Act provisions. Nearly 95% of participants didn’t transfer investments in the year. Those who did moved into more conservative investments.
Retirement plan participants had plenty of questions as the pandemic took hold, as evidenced by Principal reporting that call center volume was up 13% in 2020. The duration of those calls rose 18%. Peak call dates were between March 16-23 (market decline with first round of COVID-19-related closures); April 13 (post CARES Act enactment); and November 30 (post-holiday and elections).
Match suspension among plan sponsors was rare (below 2% for all plans serviced by Principal), with frequent reinstatement, especially among larger plans.
Despite the CARES Act enabling easier access to retirement funds, loan activity actually declined by 20% in 2020 compared to 2019—although the average loan amount rose by 16% in 2020. Overall, only 6% of plan participants with a CRD available took one as of Dec. 31, 2020. The average amount requested was slightly below $17,000, with the median being $8,400.
For comparison, T. Rowe Price recently shared that 9% of its 401k plan participants used at least one CARES Act provision last year.
CRD withdrawals by the numbers
Of those who took a hardship withdrawal between January 1 and December 31, 2020:
- 63% of participants that took a CRD received more than 95% of their account balance. 70% of CRDs were taken by individuals with savings of $25,000 or lower, and 48% by those with balances under $10,000.
- More than half (56%) of CRDs were taken by mid-career participants (age 35-54).
- Male participants requested slightly more CRDs than their female counterparts. However, men comprised 73% of CRDs at the IRS limit of $100,000.
- For those who requested a withdrawal of $100,000 (the IRS CARES Act maximum), the majority withdrew less than half of their total account balance.
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
