Most defined-contribution plan sponsors have instituted COVID-19 relief for their participants, but there appear to be few takers for those newly allowed distributions and loans.
About 90% of DC plans have either implemented COVID-19-related distributions or are planning to, according to a survey published this week by the Defined Contribution Institutional Investment Association. A separate report from the Plan Sponsor Council of America found that nearly 64% of 137 DC plan sponsors surveyed currently allow those distributions that were authorized under the CARES Act.
About one-in-five sponsors said they are “taking a wait-and-see approach” before deciding which, if any, CARES Act provisions to allow, according to PSCA. However, far fewer plan sponsors, about 37%, have moved to allow the expanded plan loan amounts allowable under the CARES Act, that group found.
Most participants have not taken distributions, PSCA noted. For plans that allow COVID-19 distributions, nearly 40% said that anywhere from 1% to 5% of their participants have taken them. The rest of the plan sponsors that group surveyed said less than 1% had taken distributions.
Separately, a survey report this week from Commonwealth and DCIIA found that there is a link between having low savings and likelihood of taking COVID-19 401(k) distributions. Among nearly 500 people with household income between $20,000 and $75,000 surveyed in March and April, about 5% said they have taken COVID distributions, while 7% said they plan to do so soon.
About 70% of 401(k) participants said they have taken steps to reduce their expenses amid the economic slowdown, according to Commonwealth. About 10% of people said they have stopped contributing to their retirement plans, that report noted.
For participants who have dipped into their retirement savings, most took distributions rather than plan loans, according to PSCA’s report. Just over 12% of plan sponsors said their participant were more likely to have taken loans than distributions.
The CARES Act allows eligible participants to take distributions or loans of up to $100,000.
Employers are also taking steps to reduce their costs. About 8% of the 40 plan sponsors surveyed by DCIIA said they are considering reducing non-matching 401(k) contributions, and 6% said they are thinking about stopping them altogether. Another 8% said they have already stopped making matching contributions, though an additional 6% are still thinking about doing so, according to DCIIA. Further, 3% of employers have reduced matching contributions, rather than halting them entirely, and 6% more are thinking about reducing them, the survey found.
Companies are more likely to have taken other measures to cut costs in this time of economic uncertainty, with 50% saying they have made company-wide hiring freezes. Other measures include department-specific freezes (38%) or reduced hours for certain divisions (38%). Thirteen percent said they are cutting costs through layoffs, according to DCIIA.
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