Some 401(k)s Show Increase of Withdrawal Requests

While the trend might only affect less than 1% of 401(k) participants, a spike in withdrawal requests and deferral rate decreases to zero percent should still be a cause for concern for plan sponsors.

That was a key conclusion of a new Mercer analysis of January to December 2008 data for the 1.2 million 401(k) participants in the plans it administers for clients.

Mercer pointed to two potentially dangerous trends in its analysis:

  • a 59% increase in November and December for those asking for plan withdrawals
  • since July, a steady increase in the number of participants who have reduced their contribution rate to zero, and overall Mercer has seen more participants decrease rather than increase their contribution rates throughout 2008, a trend rarely seen in more stable economic times.

Mercer said participants have also shifted assets dramatically from equity markets into capital preservation funds. In fact, Mercer said that compared with the same time frame last year, balances and plan contributions in stable value and money market funds have grown 70% from 2007, while equity funds have decreased correspondingly.

Other findings from Mercer’s analysis include:

  • Mercer’s call center activity in September and October saw increases between 10% and 20%, but those are the only two months showing an increase since May 2008.
  • Mercer’s participant-related Web site traffic has remained fairly flat throughout 2008 with a spike occurring in October when the stock market had its most dramatic decrease.
  • Some 28% of 401(k) retirement plan participants have seen a 30% or more decrease in their account balances in 2008 through December.