COVID-19 Having Bigger Impact on Smaller 401ks – The 401(k) Specialist

According to new data from Ascensus, small business 401k plans with 25 or fewer participants appear to have been much more significantly impacted by COVID-19.

Drawing data from more than 116,500 retirement plans on the Ascensus platform representing more than 11 million Americans, employer contributions decreased 11.4% during March through May. Between January and May, small business plans (25 or fewer savers) saw a decrease in employer contribution activity at five times the rate of plans with over 100 savers.

The data show savers and employers alike have decreased retirement and college savings plan contributions following business closures, changes in employment status, and related changes in income due to the pandemic.

Findings include 11.8% of employers stopped or decreased their retirement plan matching contributions as of the end of May. But on a positive note, 7.5% of employers that had decreased their match in or after March had returned to their previous matching levels by the end of May.

Overwhelmingly, 93.1% of retirement savers made no change to their savings rates, illustrating the positive value of automatic payroll deduction.

Employer adoption of coronavirus-related distributions (CRDs) and expanded loan options offered through the CARES Act remains relatively low across all plans. However, larger plans with over 100 savers are adopting CRDs at a much higher rate (35.1%) than small plans with 25 or fewer savers (3.8%).

In the face of COVID-19 and its related challenges, Ascensus notes in its State of Savings: June 2020 report that many Americans understandably adjusted their contributions to savings plans. However, the relatively small percentage of employers that reduced their retirement plan match at the start of the pandemic have already begun to revisit that decision. Additionally, most retirement and education savers aren’t tapping into existing savings and are making efforts to “stay the course.”

Ascensus says the proprietary data reveals how Americans changed their savings behaviors over the course of the COVID-19 outbreak as business and travel restrictions disrupted the U.S. economy.

“These insights serve as an early baseline for the evolution of savings plan contribution and withdrawal behaviors in response to the pandemic and subsequent passage of the CARES Act,” the statement said. “We expect to see new trends emerge as financial markets continue to rebound and stabilize and as states across the nation gradually reopen their economies.”

One-time 529 contributions sink

From the last week of March through the end of May, the Ascensus data shows there was a 20.8% decrease in the total dollars contributed to 529 accounts in the form of a one-time contribution.

Alternatively, automated 529 contributions have seen little change over the same period, affirming the value of making savings automatic.

The number of qualified 529 account withdrawals also decreased by 28.8% over this period, with the average amount taken per qualified withdrawal dropping by 22.5%.

View and download the complete State of Savings report here.

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