401(k) Plan Contribution Rates Remain Steady but Loans Still Elevated

NEW YORK (MainStreet)—The contribution rate to 401(k) plans remains brisk, but while loans drawn against the plans have declined slightly they still remain at disturbingly high levels. With nearly $3 trillion in assets in defined contribution plans and 50 million active participants, less than 1% of plan participants discontinued contributions in the first quarter of this year, according to just-released research by the Investment Company Institute (ICI).

Analyzing recordkeeper data of nearly 24 million plan participant accounts, the research shows Americans continue to rely on 401(k) plans as an important savings tool for retirement. Assets in all defined contribution plans comprised more than one-quarter of assets in the total retirement market and accounted for almost one-tenth of U.S. households' aggregate financial assets at the end of the first quarter of 2013.

Additional findings include:

  • DC plan withdrawals in the first quarter remained low and were in line with the prior year's activity. Only 1.3% of DC plan participants made withdrawals in the first quarter of 2013, compared with 1.2% during the first quarter of 2012. Just 0.4% took hardship withdrawals during the first quarter of 2013, the same share as the first quarter of 2012.
  • While loan activity dipped slightly by the end of the first quarter, it continues to remain at a high level when compared to five years ago. At the end of March 2013, 17.9% of DC plan participants had loans outstanding, compared with 18.2% at year-end 2012, and 15.3% at year-end 2008.
  • The stock market was generally favorable through the first quarter and most 401(k) plan participants stayed the course in their asset allocations with 4.8% of DC plan participants changing the asset allocation of their current account balances and of their future contributions -- similar reallocation levels as observed in the first quarter of 2012.

Meanwhile, in another sign of increasing 401(k) popularity, Fidelity Investments, a leading provider of employer-sponsored 401(k) plans, has reported defined contribution sales and commitments totaling $40.5 billion in assets under administration for the first half of this year. That marks an increase of nearly 60% over 2012 first half sales of $25.5 billion. The firm says sales rose across all market segments, with particularly strong growth noted in the tax-exempt market which garnered $8.8 billion in sales, a 250% increase over the same period last year.

--Written by Hal M. Bundrick for MainStreet

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