DC Participants Stay the Course with Saving and Investing

Defined contribution (DC) plan participants seem committed to keeping their savings in tact as DC accounts make up a growing percentage of U.S. retirement assets.

A report, “Defined Contribution Plan Participants’ Activities, 2013,” released by the Investment Company Institute (ICI), finds the majority of participants continued contributing to their plans in 2013, with only 2.7% stopping contributions, compared with 2.6% in 2012. The report notes some of these participants may have stopped contributing simply because they had reached their annual contribution limit.

Most DC participants stayed the course in terms of asset allocations as stock prices generally increased during 2013. Throughout the year, 10.7% of participants changed the asset allocation of their retirement account balances and 7.4% changed the asset allocation of their contributions. The report says such reallocations are in line with the activity observed in 2012.

Plan withdrawals in 2013 remained low and stayed in line with activity in 2012. Only 3.5% of DC plan participants took withdrawals in 2013, compared with 3.4% in 2012. Only 1.7% took hardship withdrawals during 2013, the same as in 2012.

Loan activity remained about the same throughout 2013, although it continues to remain elevated compared with five years ago. At the end of December 2013, 18.2% of DC plan participants had loans outstanding, the same level seen at year-end 2012, and compared with 18.5% at year-end 2011 and 15.3% at year-end 2008.

According to the report, as of the fourth quarter of 2013, 401(k) plans and other DC plans made up $5.9 trillion, of overall retirement assets. This is compared with $5 trillion in 2012 and $4.5 trillion in 2011, as well as a low of $4.4 trillion in 2008 and 2007.

The remainder of overall retirement assets for 2013 consists of annuities, individual retirement accounts (IRAs) and private DB plans, as well as federal, state and local pension plans, representing around $17 trillion.

“Defined contribution plan assets are a significant component of Americans’ retirement assets, representing more than one-quarter (26%) of the total retirement market and almost one-tenth of U.S. households’ aggregate financial assets at year-end 2013,” say report authors Sarah Holden, ICI’s senior director of Retirement and Investor Research, and Daniel Schrass, ICI associate economist, who are based in Washington, D.C.

Research for the report represents a cross section of recordkeeping firms that serve a broad range of DC plans and cover nearly 24 million employer-based DC retirement plan participant accounts as of December 2013. ICI has been tracking participant activity through recordkeeper surveys since 2008.

A copy of the report can be downloaded here.