Retirement savers stayed the course in 2021 despite pandemic

Workers continued saving for retirement in their company plans last year, with only a fraction making withdrawals despite the ongoing coronavirus pandemic, according to a study released Tuesday.

The Investment Company Institute found that 4.1% of participants in defined-contribution retirement plans made withdrawals in 2021, up slightly from 3.8% in 2020 and 3.9% in 2019. The withdrawal rates of the pandemic years also were higher than the 3.1% rate recorded in 2009 during the financial crisis, another year of financial distress the organization used for comparison.

Plan participants stayed the course, making contributions last year in much the same way they did during 2020 and during the heart of the financial crisis, with 2.2% halting contributions in 2021, 2.3% in 2020 and 3.4% in 2009, according to the ICI report, Defined Contribution Plan Participants’ Activities, 2021.

“Despite the many challenges brought on by the lingering pandemic over the past year, the data suggest retirement savers generally worked to preserve their nest eggs,” Sarah Holden, ICI senior director of retirement and investor research, said in a statement. “These data indicate that DC plan savers generally continued making contributions and resisted taking withdrawals.”

The ICI report was based on record-keeper data for defined-contribution plans covering more than 35 million participant accounts as of December 2021. The ICI, a trade association representing the mutual fund industry, has been monitoring plan participant activity since 2008.

The report was released as retirement security has become an issue, with bipartisan momentum in Congress. The House recently passed overwhelmingly a bill that would expand workplace savings programs and help workers put away more money for retirement.

The ICI report showed that hardship withdrawals were taken by 2.1% of plan participants in 2021, up from 1.4% in 2020, 1.9% in 2019 and 1.6% in 2009.

“Withdrawal activity likely reflects the impact of ongoing financial stresses relating to the COVID-19 pandemic, although the penalty relief and increased flexibility in plan withdrawals under [2020 legislation] are no longer available in 2021,” the ICI report states. “In 2020, record keepers identified 5.8 percent of DC plan participants taking coronavirus-related distributions.”

The ICI report also showed that 9.1% of plan participants changed the asset allocations of their account balances last year, while 5.3% changed the asset allocations of their contributions.