Plan sponsors are working hard to reach out to participants who dipped into their retirement savings during the pandemic, record keepers and other industry observers say.
"It's a huge focus, especially within industries that were greatly impacted, such as travel and entertainment," said Jeanne Thompson, a senior vice president at Fidelity Investments Inc. in Boston.
Plan sponsor outreach to participants is picking up notably in industries where people are returning to work but is more muted in industries where people are still furloughed or working reduced hours, Ms. Thompson said.
"They're trying to be sensitive to the financial position that people may be in," she said of plan sponsors trying to connect with participants who either pulled money from their retirement accounts or borrowed against them to make ends meet during the pandemic.
The retirement plan provisions of the CARES Act, which former President Donald Trump signed into law in March 2020, made it much easier for plan participants to tap their retirement savings for COVID-19-related financial emergencies. Participants whose employers adopted the voluntary measures were able to take hardship distributions of up to $100,000 from their retirement accounts without the 10% early withdrawal penalty if they were under the age of 59½. They could also borrow up to $100,000 from their accounts, or twice as much as they could before.
As the nation emerges from the pandemic, plan sponsors are taking stock of who took advantage of the distributions and loans available under the CARES Act and encouraging them to gradually replenish their balances. Sponsors fear that if participants took the maximum amount — or depleted their savings, as some of them did — it could have a devastating impact on their ability to retire on time, many observers say.
To the relief of many plan sponsors, the uptake on the loans and withdrawals was much more restrained than anticipated. Almost half of plan sponsors (49.4%) reported that the percentage of participants who took coronavirus-related distributions ranged from less than 1% to 5%, according to a survey of 139 plan sponsors conducted by the Plan Sponsor Council of America in November. More than 1 in 10 (14.7%) said that none of their participants withdrew funds.
Even fewer participants took advantage of the loans available. The majority of plan sponsors (64.3%) reported that the percentage of participants taking coronavirus-related loans ranged from less than 1% to 5%. More than 1 in 5 (21.4%) said there were no takers on the loans.
Still, plan sponsors are concerned. "Maybe the uptake wasn't as high as we might have thought, but there was still a lot of money that left the system," said Jamie McAllister, senior vice president on Callan LLC's defined contribution team in Chicago.
At Fidelity, for example, 1.6 million participants — or 6.3% of the company's participant base — withdrew a total of $32 billion, with the typical distribution averaging $9,400.
That's considerable given that the average account balance is about $100,000, Fidelity's Ms. Thompson said. "If someone takes out roughly $9,000 or $10,000, they're taking out 10%," she said.