Despite the ongoing challenges brought about by the pandemic, 2021 withdrawal and contribution data indicate that virtually all DC plan members have continued to save in their workplace retirement plans.
Only 2.2% of DC plan participants stopped contributing in 2021, compared to 2.3% in 2020 and 3.4% in 2009, according to the Investment Company Institute’s Defined Contribution Plan Participants’ Activities 2021 study. And it’s possible that some of those participants stopped contributing simply because they reached the annual contribution limit, the report notes.
Most DC plan participants also stayed the course with their asset allocations, as stock values generally rose throughout the year. In 2021, 9.1% of DC plan participants changed the asset allocation of their account balances, down from 10.6% in 2020 and 11.8% in 2009.
In 2021, 5.3% changed the asset allocation of their contributions, slightly less than the 6.3% of participants in 2020 and much less than the 10.5% in 2009. ICI notes that, during this period, stock prices have generally risen on the net, with the S&P 500 Total Return Index up 28.7% in 2021.
Overall, DC plan assets accounted for more than a quarter (28%) of the total retirement market and about a tenth of aggregate US household financial assets at the end of 2021.
Prepared by ICI’s Sarah Holden, Daniel Schrass, and Elena Barone Chism, the study tracks contributions, asset allocations, withdrawals, and other activities in 401(k) and other DC retirement plans, based on data from DC plan registers covering over 35 million member accounts. in employer-sponsored DC plans starting in December 2021.
Withdrawal and loan activity
Withdrawal activity from DC plans remained low in 2021, although it was slightly higher than activity seen in recent years, the report noted. In 2021, 4.1% of DC plan participants made withdrawals, compared to 3.8% in 2020 (when the pandemic hit the US), 3.9% in 2019, and 3.1% in 2009 ( another period of financial market stress).
Levels of hardship withdrawal activity also remained low. Only 2.1% of DC plan participants made hardship withdrawals in 2021, compared to 1.4% in 2020, 1.9% in 2019 and 1.6% in 2009.
ICI observes that withdrawal activity likely reflects continued pandemic-related financial strains, although penalty relief and increased flexibility for plan withdrawals under the CARES Act enacted in March 2020 will no longer be available in 2021. .participants taking coronavirus-related distributions (CRDs).
Lending activity by DC Plan participants decreased slightly in 2021. At the end of December 2021, 12.5% of DC Plan participants had loans outstanding, compared to 14.8% at the end of 2020 and 16, 1% at the end of 2019.
“It is possible that the availability of CRDs in 2020 has led to a reduction in lending activity”, further observes the ICI. Additionally, DC plan participants are no longer required by law to first take out a loan (in plans with a loan option) before taking a hardship withdrawal, although some plans may retain this requirement. , notes the report.