18 September 2021

Participants Not Rushing to Drain 401(k)s -- Yet

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People are dipping into their retirement savings to help offset the economic impact of the COVID-19 pandemic, but so far those withdrawals appear to be modest in size. A new Investment Company Institute (ICI) research report — “Defined Contribution Plan Participants’ Activities, First Half 2020” — showed that withdrawal activity from DC plans remained low for the first half of 2020.  

The report updates results from an ICI survey of a cross section of recordkeeping firms that cover more than 30 million employer-based DC retirement plan participant accounts. Per the findings, DC plan withdrawal activity was only slightly higher in the first half of 2020 than it was during the corresponding period in 2019.

The raw numbers illustrate just how minor that uptick was, with 2.8% of DC plan participants taking withdrawals in 2020 and 2.5% doing the same during 2019’s first half. Meanwhile hardship withdrawal levels stayed consistent, with 1.1. DC plan participants engaging in that activity in 2019 and 2020.

Sarah Holden, ICI senior director of retirement and investor research, indicated that the slight increase in DC plan participant withdrawals in the first half of 2020 was “much smaller than you might expect, given the severity of the COVID-19 economic downturn.” It’s possible that plan participants are simply thinking long-term.

The report shows that the majority of plan participants are not allowing volatility in the stock market to dramatically shift their asset allocations. During the first 6-months of 2020, only 8.3% of DC plan participants changed the asset allocation of their account balances compared to the 6.1% who did so in the early half of 2019.

“These assets represent a pot of money that savers have earmarked for retirement and they have consistently demonstrated that they generally stay the course to reach that financial goal, even during challenging economic situations,” Holden said in a press release.

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