CD withdrawal activity could be due to residual pandemic effects

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In 2021, 4.1% of DC plan participants made withdrawals, compared to 3.8% in 2020, 3.9% in 2019 and 3.1% in 2009 (another period of financial market stress).

This is indicated by recent research in the ICI research report: Activities of participants in the defined contribution plan, 2021.

About one-tenth of aggregate US household financial assets were in defined contribution (DC) plans, and 28% of US retirement assets were in defined contribution plans. Other retirement assets break down as follows: 13.9% in IRAs, 3.8% in private defined benefit plans, 8.0% in federal, state or local defined benefit plans and 2.6% in annuities.

Withdrawal activity

Levels of hardship withdrawal activity also remained low. Only 2.1% of DC plan participants made hardship withdrawals in 2021, compared to 1.4% in 2020, 1.9% in 2019 and 1.6% in 2009.

Withdrawal activity likely reflects the impact of ongoing financial strains related to the COVID-19 pandemic, although penalty relief and increased flexibility for plan withdrawals under the CARES Act (Coronavirus Aid, Relief, and Economic Security Act) were no longer available in 2021. 2020, archivists identified 5.8% of DC plan participants taking coronavirus-related distributions (CRDs).

The CARES Act contained provisions providing penalty relief for taxpayers affected by COVID-19 who made early withdrawals from retirement accounts. Other provisions included expanding the availability of in-service distributions for those affected by COVID-19, allowing CRD repayments, increasing the amount available for a plan loan, and adding flexibility in the repayment of plan loans.

Most DC plan participants stayed the course with their asset allocations, as stock values ​​generally rose throughout the year. In 2021, 9.1% of DC plan participants changed the asset allocation of their account balances, down from 10.6% in 2020 and 11.8% in 2009.

In 2021, 5.3% changed the asset allocation of their contributions, just under 6.3% in 2020 and well under 10.5% in 2009.

Lending activity

Lending activity by CD plan participants decreased slightly in 2021. At the end of December 2021, 12.5% ​​of CD plan participants had outstanding loans, compared to 13.2% at the end of September 2021, 13.5% at the end of June 2021 and 14.3%% at the end of March 2021.

The bipartisan budget law of 2018, having relaxed this requirement, could be a new factor influencing lending activity. The recent peak in lending activity to 401(k) plan participants occurred in late 2018. Continuing this broader downward trend, the sample of archivists indicated that in December 2021, 12.5% ​​of DC plan participants had outstanding loans, compared to 14.8% at the end of 2020.

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