Last year only 2.5% of defined contribution plan participants stopped contributing to their plans, suggesting that despite sustained market volatility, Americans still exhibit disciplined savings habits, according to new industry research.
The Investment Company Institute released a report in March 2023 titled “Defined Contribution Plan Participants’ Activities, 2022,” which examined participant-directed changes in DC plans by tracking activity through recordkeeper surveys and comparing it to data going back to 2008.
DC plan participants remained committed to making contributions in previous years. Only 2.2% of participants stopped contributing in 2021, 2.3% in 2020, 2.3% in 2019, and 3.4% in 2009.
Withdrawal activity of defined contribution plan participants stayed low in 2022 at 4.1%, the same as 2021. In previous years, the percentage of DC plan participants who took withdrawals was 3.8% in 2020, 3.9% in 2019 and 3.1% in 2009.
Levels of hardship withdrawal activity increased slightly in 2022 but were still low in absolute terms. Participants requesting a hardship withdrawal were required to demonstrate financial hardship. They generally received a 10% penalty on the taxable portion of the withdrawal.
Hardship withdrawal activity was 2% in 2022, 1.7% in 2021, 1.4% in 2020, 1.9% in 2019 and 1.6% in 2009. The data indicated that despite challenging times, Americans are set on protecting their retirement savings, as concluded by the ICI report.
Continued financial stressors caused by the COVID-19 pandemic likely still affect DC plan participants. Furthermore, provisions under the Coronavirus Aid, Relief and Economic Security Act were no longer available in the last two years, ending access to penalty relief and increased flexibility in plan withdrawals.
Although stock values fell during 2022, most DC plan participants did not change the asset allocations of their account balances. According to the survey, 8% altered their allocations in 2022, 9.1% in 2021, 10.6% in 2020, 8.3% in 2019 and, going back a full decade, 11.8% in 2009.
Individual DC plan participants reported that employer-sponsored retirement accounts gave them security in their financial futures. 79% of DC or IRA owners expressed confidence in the 401(k) system’s ability to help them meet their retirement goals. Eight out of 10 participants said saving money from each paycheck made them less worried about the short-term performance of their investments.