By Pension and Benefits Editorial Staff
Despite the disruptions and financial stress experienced by US households due to the global COVID-19 pandemic, a majority (65 percent) of US individuals did not take financial actions as a result of COVID-19, according to a national survey by Investment Company Institute (ICI). The Coronavirus Aid, Relief, and Economic Security (CARES) Act, enacted March 27, 2020, provided penalty relief and increased flexibility in retirement plan withdrawals and loans. ICI decided to investigate how Americans responded to the financial pressure, especially considering the relief provided by Congress.
The other 35 percent took a variety of actions, and some individuals took multiple actions. The most common responses to handle the financial hardships brought on by the COVID-19 pandemic were using emergency savings, reported by 20 percent of individuals, and increasing credit card debt, reported by 18 percent of individuals. Seven percent reported increasing other debt (excluding loans from 401(k)-type retirement plan accounts). The ICI survey found that drawing on retirement accounts was the least common response: 6 percent of individuals reported taking withdrawals from 401(k)-type retirement plan accounts; 3 percent took withdrawals from individual retirement accounts (IRAs); and 3 percent took loans from 401(k)-type retirement plan accounts as a result of COVID-19.
Preserving retirement savings gets high priority. ICI notes that the survey findings are consistent with the data ICI has published throughout the pandemic based on actions reported by recordkeepers to defined contribution (DC) retirement plans. Through the first three quarters of 2020, 3.4 percent of plan participants took withdrawals from their DC accounts, including 1.2 percent who took hardship withdrawals. During this same time period, DC plan recordkeepers reported that 4.4 percent of DC plan participants took CARES Act coronavirus-related distributions, which participants can repay. At the end of September 2020, 15.4 percent of DC plan participants had loans outstanding, which is a decline from more than 16 percent early in the year.
According to ICI, the self-reported actions from the survey and the administrative recordkeeper data based on actual DC account activity contradict claims that large numbers of savers turned to withdrawals or loans from retirement plans in response to COVID-19 financial stress. On the contrary, Americans appear to have placed a high priority on preserving their retirement savings.
Source: ICI Viewpoints.
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