How government DC plans implemented coronavirus-related distributions under CARES Act provisions
Initially, plan sponsors may have interpreted the $100,000 CARES Act loan maximum to be mandatory.
Nearly half of state and local government defined-contribution plans had implemented coronavirus-related distributions (CRDs) under the CARES Act by July, according to research from the Public Retirement Research Lab.
The CARES Act, which was enacted in March, allows CRDs of up to $100,000 through this December, with a three-year repayment period. Loan maximums were raised as high as $100,000 through September 22, and loan repayments can be delayed for one year.
The average percentage of state and local government plans that implemented CRDs in April was 39 percent, rising to 47 percent by July.
The range was wide, with some recordkeepers reporting that virtually all government plans on their system had CRDs and others reporting a nominal amount.
Researchers calculated that just less than one-half of one percent of state and local government plan participants on average took CRDs in April, rising to 0.82 percent by July. The average dollar amount was higher, however, at $12,666 in April and declining to $11,542 by July.
The median of average account balances reported by government plans as of Dec. 31, 2018, was $45,505. This implies that the typical amount of distribution taken is one-quarter of balances.
A slightly lower percentage of participants in the federal government took a CRD, but the average distribution was much larger than for state and local government plan participants. The typical plan balance of federal workers is larger than that of state and local workers, however, at $150,000.
More recordkeepers report implementing deferred loan repayments under the CARES Act vs. higher loan maximums for state and local government plans. This may reflect plan sponsors’ concerns about additional plan leakage from greater loan access.
Initially, plan sponsors may have interpreted the $100,000 CARES Act loan maximum to be mandatory. Subsequent clarification that the higher loan maximum isn’t mandatory might explain the declining proportion offering these higher loan maximums over time.
The average percentage of state and local government defined contribution plan participants changing their deferral rate was significantly higher in March than in subsequent or previous months.
State and local government defined contribution plans saw an uptick in monthly investment election changes in March. The average number of investment election changes nearly doubled from the previous month, going from 1.4 percent to 2.7 percent.
Similarly, the proportion of federal participant investment election changes increased from 2.6 percent to 4.8 percent of workers making a change between February and March. For federal workers, investment election changes spiked again in June.
The PRRI website has the complete report, “Impact of CARES Act Distribution Provisions on Government DC Plans.”
READ MORE: