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First-Half Market Doldrums Don’t Deter Retirement Savers

Practice Management

Despite various reports showing that many people have cut back on saving, new data by the Investment Company Institute suggests otherwise — at least  regarding defined contribution plans. 

In fact, retirement saving continued to be a strong focus for DC plan participants through the first half of 2022, according to ICI’s study “Defined Contribution Plan Participants’ Activities, First Half 2022.” 

In tracking the contributions, withdrawals and other activity using recordkeeper data covering more than 40 million employer-based DC retirement plan participant accounts, ICI found that only 1.6% of DC plan participants stopped contributing in the first half 2022, compared with 1.1% in the first half of 2021, 2% in the first half of 2020, and 4.6% in the first half of 2009.

DC plan participants’ withdrawal activity during the first half of 2022 also remained low and was similar to activity observed in the first half of 2021. For instance, ICI’s data shows that only 2.9% of DC plan participants took withdrawals during the first half, compared with first-half withdrawals of 2.8% in 2021, 2.8% in 2020 and 1.8% in 2009 (another time of financial market stress).

What’s more, most DC plan participants did not change their asset allocations, even as stock values generally declined during the first six months of the year. In the first half of 2022, 6.6% of DC plan participants changed the asset allocation of their account balances, slightly lower than the 7.3% who did so in the first half of 2021, the 8.3% in the first half of 2020, and the 7.7% in the first half of 2009.

“Defined contribution plan participants generally stayed the course with ongoing contributions, and withdrawal activity remained low in the first half of 2022,” said Sarah Holden, ICI Senior Director of Retirement and Investor Research. “Plan participants held steady with their asset allocations despite stock values generally declining in the period.”

In the first six months of 2022, stock prices generally declined; on net, the S&P 500 total return index was down 20% during that period. 

Additional Findings

Levels of hardship withdrawal activity did edge up slightly in the first half of 2022, although they still remained low, the ICI notes. Only 1.6% of DC plan participants took hardship withdrawals in the first half of 2022, compared with 1.1% in the first half of 2021.

Meanwhile, DC plan participants’ loan activity remained the same in the second quarter of 2022. At the end of June 2022, 12.5% of DC plan participants had loans outstanding, compared with 12.5% at the end of March 2022, 12.5% at year-end 2021, and 14.8% at year-end 2020. 

The ICI notes that it’s possible the availability of coronavirus-related distributions (CRDs) in 2020 has resulted in reduced loan activity. Additionally, a DC plan participant is no longer required by law to first take a plan loan (in plans with a loan option) before taking a hardship withdrawal, though some plans may retain this requirement.