Americans saving for retirement through their defined contribution (DC) plan have largely stayed the course throughout 2022 even though their account balances have taken a hit.
The latest ICI survey data for the first three quarters of 2022 of plans covering more than 40 million participant accounts shows that, despite ongoing market volatility, most DC plan participants kept their asset allocations steady as stock values generally fell during the first nine months of the year.
In the first three quarters of 2022, 7.4% of DC plan participants changed the asset allocation of their account balances, slightly lower than 8.3% in the first three quarters of 2021 and 9.5% in the first three quarters of 2020. By comparison, in the first three quarters of 2009, when the U.S. was facing the economic circumstances of the global financial crisis, 9.9% changed the allocation of their account balances.
Even fewer DC plan participants changed the asset allocation of their contributions. In the first three quarters of 2022, only 3.8% changed how their contributions were allocated, much lower than 9.8% in the first three quarters of 2009.
Moreover, DC plan participants’ commitment to contribution activity in the first three quarters of 2022 continued at the high rate observed in the first nine months of other years. Only 2.1% of DC plan participants stopped contributing during the first three quarters of 2022, compared with 1.2% during the same period in 2021, 2.2% in 2020, 1.9% in 2019, and 5% in the first three quarters of 2009.
During this period in 2022, stock prices generally declined. The ICI notes that, on net, the S&P 500 total return index fell 4.6% in Q1, 16.1% in Q2, and 4.9% in Q3; and, between December 2021 and September 2022, the S&P 500 total return index was down 23.9%.
Loans and Withdrawals
Meanwhile, DC plan participants’ loan activity edged up slightly in the third quarter of 2022, although continues to be close to its historically low level, the report further shows. At the end of September 2022, 13% of DC plan participants had loans outstanding, compared with 12.5% at the end of June 2022, March 2022, and December 2021.
The ICI observes that the availability of coronavirus-related distributions (CRDs) in 2020 may have resulted in reduced loan activity. Additionally, a DC plan participant is no longer required to first take a plan loan (in plans with a loan option) prior to taking a hardship withdrawal, though some plans may retain this requirement. The recent peak in 401(k) plan loan activity was at year-end 2018 when 16.7% of DC plan participants had loans outstanding.
DC plan participants’ withdrawal activity in the first three quarters of 2022 remained low, in line with the activity observed in recent years, the report further notes. In the first three quarters of 2022, only 3.3% of DC plan participants took withdrawals, compared with 3.7% in the first three quarters of 2021, 3.4% during the same period in 2020 (as the pandemic hit), 3.3% in 2019, and 2.6% in the first three quarters of 2009.
Note that these withdrawals do not include CRDs, which were available during 2020. During the first three quarters of 2020, recordkeepers identified 4.4% of DC plan participants taking CRDs.
And notwithstanding other reports showing that hardship withdrawals are increasing, the ICI found that levels of hardship withdrawal activity also remained low. Only 2% of DC plan participants took hardship withdrawals in the first three quarters of 2022, compared with 1.6% of DC plan participants during first three quarters of 2021, 1.2% in the first three quarters of 2020, and 1.3% in the first three quarters of 2009.
“ICI’s research is showing that 401(k) investors save for the long term and prioritize keeping their retirement nest eggs intact,” Sarah Holden, ICI Senior Director of Retirement and Investor Research, said in a statement. “Withdrawal activity was a bit lower than the same time last year, and retirement savers remain committed to their asset allocations.”
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