COVID-19’s impact on DC plans may be manageable

Market volatility may be biggest factor in producing retirement shortfalls, according to the Employee Benefit Research Institute

The impact of the coronavirus on the future retirement of defined contribution plan participants may be more manageable than previously thought, according to research by Employee Benefit Research Institute.

The Washington-based policy group explored assumptions about future employee and employer behavior in response to the current situation and potential decreases in defined contribution eligibility arising from increased unemployment. It found a $3.68 trillion aggregate retirement-adequacy deficit for all U.S. households ages 35–64 as of January 1, 2020, which represents an increase of only 4.5%, or $166.21 billion. Even a combination of the most pessimistic assumptions increased aggregate retirement deficits by only 11.2%, or $412.77 billion.

The report found that market volatility may be the largest factor in increasing retirement savings shortfalls and decreasing savings surpluses, especially in a worst-case scenario. That permanent termination of defined contribution plans under $10 million in assets, however, could have a large impact for younger investors.

Match suspensions by plan sponsors, contribution suspensions by workers, increases in withdrawals, and decreased eligibility do not have as much impact when spread over all U.S. households, EBRI said.