Vanguard says Covid-19 has had some negative impact on its plan participants’ retirement savings, but retirement readiness is nonetheless “better than expected.”
Savings rates among Vanguard’s defined contribution plan members remain mostly on track despite the economic hardships resulting from the Covid-19 crisis and the economic stimulus package that allowed for penalty-free withdrawals from retirement plans, the company says.
Only 4.5% of plan participants withdrew assets from their plans through a coronavirus-related distribution, and fewer than 1% took a loan under the Coronavirus Aid, Relief, and Economic Security Act, according to Vanguard’s analysis of its DC recordkeeping data from January through September. Hardship withdrawals were also 23% lower this year than in 2019, while loan activity was 28% lower, the company says.
Meanwhile, the median participant coronavirus-related distribution was around $12,000, Vanguard says.
Overall, 12% of plan participants have increased the percentage of their payroll deferrals so far this year, compared to 14% in 2019, while 7% decreased the percentage, versus 6% last year, according to Vanguard’s analysis. Only 3% of participants stopped contributing to their plan, which was the same as last year, while 24% had deferral rates rise due to automatic increases, compared to 23% last in 2019, Vanguard says.
“The aggressive Cares Act loan and withdrawal provisions caused some concern among plan sponsors about leakage from their plans,” the company says in a statement. “However, the data shows very few participants utilized the remedy provided. Importantly, research we published this summer suggests that those who took a Cares Act distribution can recover from their retirement readiness gap by increasing their paycheck deferral amount by, on average, 1%.”
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