Participants in 401(k)s and other defined contribution (DC) plans continued to amass significant wealth last year, according to an updated study from the Investment Company Institute (ICI). Specifically, $7.0 trillion were held in DC plans at the end of 2016 (most current data available). That represented more than a quarter (28 percent) of all U.S. retirement assets last year, and equated to almost one-tenth of Americans’ aggregate financial assets. More importantly, 2016’s yearend total was a record high for defined contribution assets, which highlights the significant rebound from $3.5 trillion in 2008 that consistent plan participants have been able to enjoy.
The ICI report also revealed that only 2.7 percent of participants stopped making contributions to their 401(k)s and other DC plans last year, a full percentage point below what was seen during the “Great Recession.” Further, hardship withdrawals were taken by just 1.5 percent of DC plan participants in 2016, the lowest reading of the current economic expansion, and only 3.3 percent of participants took any sort of withdrawal whatsoever last year, another cycle low. As for borrowing activity, just 17.0 percent of all 401(k) plan participants had a related loan outstanding at the end of the fourth quarter of 2016, the best reading since 2009. Moreover, loan activity has been on a steady downtrend since peaking in 2011.
That could be related to the tightening labor market and slight uptick in wage growth that have together provided Americans with more disposable income and therefore less need to tap into retirement assets early. Sadly, researchers at the U.S. Census Bureau estimated that even though around eight in ten Americans work for companies that sponsor a 401(k) or similar tax-deferred retirement plan, just 41 percent of employees actually take advantage of these savings vehicles. Those figures are likely to improve going forward, though, as more employers incorporate automatic enrollment and other plan design elements intended to help make sure workers are getting the most out of the benefits available to them.
Sources: Bloomberg, U.S. Census Bureau, Investment Company Institute, Employee Benefit Research InstitutePost author: Charles Couch