Both defined contribution plan and 529 college savings plan contributions were impacted as Covid-19 shut down much of the U.S. economy, according to the June 2020 State of Savings report from Ascensus.
Between January and the end of May, 1.4% of the businesses in the Acsensus analysis stopped contributions to their plans altogether. The bulk of these stoppages were due to business interruptions or closures. The industries with the highest rates of contribution stoppages included health care, where 5.1% of plans stopped contributions; accommodation and food services, where 6.5% of plans stopped contributions; and retail trade, where 3.4% plans stopped contributions.
Between the beginning of March and the end of May, more than one in nine employers, 11.8%, decreased or halted their plan contributions, leading to a 11.4% decline in total employer contributions. Yet 7.5% of the employers who had halted or decreased contributions had restored them by the end of May.
Participants were less likely to stop saving, with 93.1% making no change to their savings rates. Of those making changes, 3.8% increased their savings rates, leaving 1.8% who lowered their savings rate and 1.3% who ceased saving entirely. Another 4% ceased contributing to their plans because of termination or furlough.
By and large, small- and mid-sized employers are not permitting plan participants to take coronavirus-related withdrawals. Just under 12% of plans in the Ascensus analysis adopted the withdrawals. Of those, about one-in-three plans have had participants who actually took a coronavirus-related withdrawal.
Just 7.5% of the mid- and small-sized employers in Ascensus’s study adopted the Covid-19 expanded retirement plan loan option made available in the CARES Act. Of these, one in six have had at least on participant take advantage of the provision.
However, hardship withdrawals have been taken from retirement plan accounts at 2.5 times their normal rate, according to the report.
In its analysis of 529 college savings plans, Ascensus found a divergence between people who had automated their account contributions and those who made contributions in an ad hoc manner. There was a 20.8% decrease in the total amount contributed to 529s via one-time contributions from the last week of March to the end of May 2020, driven by a 9.7% reduction in the number of one-time contributions. Automated contributions, on the other hand, saw little change over the same time period.
Ascensus also found lower use of 529 assets, with a 28.8% decrease in the number of qualified withdrawals, and a 22.5% lower average qualified 529 withdrawal amount.
Ascensus analyzed plans with fewer than 500 participants over a study period from January 1, 2019 through May 31.