Overwhelmingly, Americans continued saving for retirement using their defined contribution (DC) plans during the first three quarters of 2020, despite the economic downturn brought on by the Covid-19 pandemic, according to the Investment Company Institute’s new report “Defined Contribution Plan Participants’ Activities, First Three Quarters of 2020.” 

In fact, only 2.2% of DC plan participants stopped contributing to their plans in the first three quarters of 2020, which reflected the same contribution levels seen during most of the previous 12 years, according to the study, which tracked the contributions, withdrawals, loan and asset allocation activity of more than 30 million participants at the end of September 2020.

Findings once again “show the long-term mindset of retirement savers,” said Sarah Holden, ICI’s senior director of retirement and investor research, in a statement. “Even in a year of unprecedented economic volatility and increased financial hardship, savers clearly view their DC account as a special pot of money earmarked for retirement, which is only tapped as a last resort. Retirement savers consistently demonstrate that they are in it for the long haul and tend to stay the course.”

The 2.2% of DC plan participants who stopped contributing to their plans in the first three quarters of 2020 is not much different from the 1.9% of participants who stopped making them during the first three quarters of 2019 and 5.0% in the first three quarters of 2009 (during the global financial crisis), ICI found.

Most DC plan participants also maintained their asset allocations, despite high stock market volatility during the first quarter of 2020. In the first three quarters of 2020, 9.5% of plan participants changed their plan asset allocation for existing investments, while 5.6% changed the asset allocation of new contributions, which was slightly more than the 4.2% who changed up in the first three quarters of 2019, but significantly lower than the 9.8% who did so in the first three quarters of 2009 as the stock market started to recover from the financial crisis, ICI found.

The fact that most plan participants have stayed the course with their contributions through the pandemic may be due to resilient stock market performance and what many stock market experts call an almost historic refusal by investors to sell.

Whether the latest round of Covid lockdowns and climbing infection rates dampen plan participant exuberance remains to be seen, but so far retirement investors appear to be invested for the long haul, which is good news for advisors, the fund industry and investors themselves.

Other ICI findings include:

  • DC plan withdrawal activity in the first three quarters of 2020 remained low, although it was slightly higher than the activity observed in the first three quarters of recent years. In the first three quarters of 2020, 3.4% of DC plan participants took withdrawals, compared with 3.3% in the first three quarters of 2019 and 2.6% in the first three quarters of 2009.
  • Levels of hardship withdrawal activity also remained low, ICI found. Only 1.2% of DC plan participants took hardship withdrawals during the first three quarters of 2020, compared with 1.6% in the first three quarters of 2019 and 1.3% in the first three quarters of 2009. The slight increase since 2019 may reflect increasing awareness of the expanded availability of hardship monies stemming from the Bipartisan Budget Act of 2018 and also reflect the onset of financial stresses relating to the Covid-19 pandemic, the trade group said.
  • Some 4.4% of DC plan participants took Covid-related distributions during the first three quarters of 2020. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) enacted in March gave individuals affected by Covid-19 penalty relief and increased flexibility in retirement plan withdrawals.
  • DC plan participants’ loan activity edged down in the third quarter of 2020, perhaps partly because of the use of Covid-related distributions instead. At the end of September 2020, 15.4% of DC plan participants had loans outstanding, compared with 15.6% at the end of June 2020, and 16.3% at the end of March 2020. Covid-related distributions, like loans, can be repaid into a retirement account; however, unlike loans, they may have current tax implications.