Retirement Plan Participant Activity Mostly Positive in 2021

Technology Driven Employee BenefitsRetirement plan participant activity during 2021 may surprise you.  Despite the ongoing financial and economic challenges related to the Covid-19 pandemic, retirement plan participant activity in defined contribution (DC) plans trended mostly positive in the first three quarters of 2021.

The news concerning retirement plan participant activity was published in a recent study from the Investment Company Institute (ICI).  The study examined participants’ withdrawal, contribution, asset allocation, and loan activity in the first nine months of last year.  According to key findings from the ICI study:

  • Withdrawals from DC plans were on the low side, but still slightly higher than in 2020.  In 2021, 3.7% of participants took withdrawals, compared to 3.4% in the first three quarters of 2020, 3.3% in the first three quarters of 2019, and 2.6% in the first three quarters of 2009, during the financial crisis.
  • Hardship activity also remained low – just 1.6% of DC plan participants took a hardship withdrawal during the first three quarters of 2021, compared to 1.2% in the first three quarters of 2020, 1.6% in the first three quarters of 2019, and 1.3% in the first three quarters of 2009. The heightened withdrawal activity likely reflected the ongoing financial stress of the Covid-19 pandemic, however, CARES Act provisions that enabled participants to take hardship withdrawals without penalty reached sun-set during 2021.
  • Contributions to DC plans remained at rates consistent with those observed in the first nine months of previous years. Just 1.2% of DC participants stopped contributing in the first three quarters of 2021, compared to 2.2% in the first three quarters of 2020, and 5% in the first three quarters of 2009.
  • As stock values rose, most DC plan participants stuck to their asset allocations in 2021.  In the first three quarters of the year, 8.3% of participants shifted the asset allocations of their account balances, slightly lower than 9.5% in the first three quarters of 2020 and 9.9% in the first nine months of 2009.  In the first three quarters of 2021, 5.2% altered 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 of 2009.
  • Loan activity dwindled in the third quarter of 2021.  As of the end of September 2021, 13.2% of DC participants had loans outstanding, compared to 13.5% at the end of June 2021 and 14.3% at the end of March 2021.  The ICI report authors observed that loan activity may have been down due to the availability of Covid-related distributions in 2020.  In addition, the law no longer requires DC plan participants to take a plan loan before taking a hardship withdrawal, although some plans may still require it.

ICI has been tracking retirement plan participant activity for participant-directed activity in DC plans since 2008.  Its latest report covers data gathered from recordkeeping firms representing a range of DC plans and covering more than 30 million employer-based DC retirement plan participant accounts as of September 2021.  The trends observed in the first nine months of 2021 were primarily positive – financial stressors such as uncertain market, economic, and geopolitical conditions in the coming year may cause some of these trends to shift.  Time will tell.

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