trendspotting | PLANADVISER July/August 2017

Withdrawals and Loans Down

Only 17.0% of people have an outstanding loan from their 401(k) last year

By Javier Simon | July/August 2017

Withdrawal and contribution data indicate that essentially all defined contribution (DC) plan participants continued to save in their retirement plans at work last year, according to “Defined Contribution Plan Participants’ Activities, 2016” by the Investment Company Institute (ICI).

ICI data shows that, in 2016, 3.3% of DC plan participants took withdrawals from their plan accounts, with 1.5% taking hardship withdrawals. These levels of activity are similar to those in 2015, ICI says.

Loan activity in 2016 remained in line with more recent quarters, when it had stabilized after a three-year rise. The percentage of defined contribution plan participants with loans outstanding rose from the end of 2008 (15.3%) through 2011 (18.5%). That percentage leveled out between 2012 and year-end 2014. At year-end 2016, the figure was 17.0%, compared with 17.4% at the close of 2015.

The ICI research also found that the share of participants who stopped making contributions last year was in line with activity in prior years. In 2016, 2.7% of DC plan participants stopped contributing, compared with 2.6% in 2015 and 2.8% in 2014. It is possible that some of these participants stopped because they had reached the annual contribution limit, ICI says.

During 2016, 9.4% of plan participants had changed the asset allocation of their account balances, compared with 9.7% during 2015. Reallocation activity regarding contributions in 2016 was slightly lower than in recent years: 5.6% of DC plan participants changed the asset allocation of their contributions in 2016, compared with 7.6% in 2015 and 6.6% in 2014.

DC plan assets are a significant component of Americans’ retirement assets, representing more than one-quarter of the total retirement market and about one-tenth of U.S. households’ aggregate financial assets at year-end 2016.

Percentage of Participants With 401(k) Loans Outstanding

Source: Investment Company Institute