DC withdrawal activity might be due to residual pandemic effects
But levels of hardship withdrawal activity remained low.
In 2021, 4.1% of DC plan participants took withdrawals, compared with 3.8% in 2020, 3.9% in 2019, and 3.1% in 2009 (another time of financial market stress).
That’s according to recent research in the ICI Research Report: Defined Contribution Plan Participants’ Activities, 2021.
About one-tenth of US households’ aggregate financial assets were in defined contribution (DC) plans and 28% of US retirement assets were in DC plans. Other retirement assets broke down as follows: 13.9% in IRAs, 3.8% in private defined benefit plans, 8.0% in federal, state or local defined benefits plans, and 2.6% in annuities.
Withdrawal activity
Levels of hardship withdrawal activity also remained low. Only 2.1% of DC plan participants took hardship withdrawals in 2021, compared with 1.4% in 2020, 1.9% in 2019, and 1.6% in 2009.
Withdrawal activity likely reflects the impact of ongoing financial stresses relating to the COVID-19 pandemic, although the penalty relief and increased flexibility in plan withdrawals under the Coronavirus Aid, Relief, and Economic Security (CARES) Act were no longer available in 2021. In 2020, recordkeepers identified 5.8% of DC plan participants taking coronavirus-related distributions (CRDs).
The CARES Act contained provisions to provide penalty relief for taxpayers affected by COVID-19 who took early withdrawals from retirement accounts. Other provisions included expanding availability of in-service distributions for those affected by COVID-19, allowing repayment of CRDs, increasing the amount available for a plan loan, and adding flexibility in repayment of plan loans.
Most DC plan participants 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, slightly lower than 10.6% in 2020 and 11.8% in 2009.
In 2021, 5.3% changed the asset allocation of their contributions, a bit lower than 6.3% in 2020 and much lower than 10.5% in 2009.
Loan activity
DC plan participants’ loan activity edged down in 2021. At the end of December 2021, 12.5% of DC plan participants had loans outstanding, compared with 13.2% at the end of September 2021, 13.5% at the end of June 2021, and 14.3% at the end of March 2021.
The Bipartisan Budget Act of 2018, having relaxed that requirement, may be a new factor influencing loan activity. The recent peak in 401(k) plan participant loan activity was at year-end 2018. Continuing this broader downward trend, the sample of recordkeepers reported that as of December 2021, 12.5% of DC plan participants had loans outstanding, compared with 14.8% at year-end 2020.