Of course they are!
Recently, there has been more reporting about 401(k) participation taking a hit amidst the COVID-19 pandemic. Now, that is a shocker.
According to folks at LIMRA Workplace Benefits Research, their findings reveal that among workers with access to a DC plan, roughly 36% say they have decreased or eliminated contributions. For those participants who once contributed but stopped (that’s about 10% overall), more than half (56%) ceased their participation in the wake of the COVID-19 crisis.
Regrettably, the change in behavior is not limited to the plan participant, as the sponsoring organizations are also reacting to market forces with more than 30% having either eliminated or reduced the company match. For those employers (with 10 or more employees) who have a DC plan in place they’ve also noted other behaviors that will likely impact wealth creation for the participants, including the fact that 13% of the plans have seen an increase in hardship withdrawals, while another 10% have seen increases in loan demand. Lastly, they note that more than 20% of plan participants have made asset allocation changes, which likely means (and I’m speculating) that equities were sold in late March or early April before the rally.
I know that I tend to come down harshly on DC plans, but they were never designed to be anyone’s primary retirement vehicle. I think that they are great for accumulating supplemental income. Furthermore, asking untrained, and lowly compensated workers, to fund, manage, and disburse a benefit that many professionals have difficulty handling is just not acceptable.
It is because of these issues that Ron and I are trying to reeducate the DB market on strategies that will secure the promised benefits while preserving DB systems for future generations of workers. The millennial cohort is already behind Boomers in wealth creation by roughly 34%. The lack of access to DB plans will likely increase that deficit and make the hope of a dignified retirement more unlikely!