A new study from the Investment Company Institute (ICI) highlights some recent trends in defined contribution (DC) plan assets, a significant component of Americans’ retirement wealth. Specifically, $6.9 trillion were held in 401(k)s and other DC plans at the end of the first quarter of 2016 (most current data available), up from just $3.5 trillion in 2008. That equated to more than a quarter (28 percent) of all U.S. retirement assets during the first three months of this year, and almost one-tenth of households’ aggregate financial assets. Only 1.1 percent of DC plan participants stopped making contributions in Q1, in line with the recovery average and a significant improvement from 2.7 in the first quarter of 2009 when the “Great Recession” was still in progress.
Similarly, just 0.4 percent of participants took a hardship withdrawal during the first quarter, unchanged from 2015 and a third of what occurred in 2009. Yesterday we learned that retirement plan “leakage” remains a serious problem in America, with 401(k) loans being one of the main reasons why money continues to exit the system each year. Encouragingly, only 17 percent of plan participants had a 401(k) loan outstanding at the end of Q1, above pre-recession levels but still the best reading of the current economic recovery. That could be as good as it gets in 2016, though, because the ICI data showed signs of a seasonal pattern where 401(k) loan activity tends to bottom during the first three months of the year and then increase in subsequent quarters.
Regardless, 2016 is on track to be the best (lowest) year for 401(k) loan activity in quite some time, and Americans’ increased desire to shore up their retirement savings is likely a big factor behind this positive development. Just look at the new report from Bankrate which found that 21 percent of surveyed U.S. adults said that their rate of retirement saving has increased over the past twelve months, and just 5 percent of respondents said that they have not yet set any money aside this year. Both of those figures are the best readings on record since Bankrate started conducting this survey, and together reflect the continued improvements in the U.S. labor market and household balance sheets.
As for age-related differences, Generation X (ages 36-51) was found to be the most likely to report a higher rate of retirement saving this year, while older generations were actually more likely to report a lower overall rate of saving. Some Americans relatively close to the age of retirement may believe that they have already done the majority of the saving they will do while employed but Greg McBride, Bankrate's chief financial analyst, stressed that “younger Baby Boomers (age 52-61) saving less for retirement than last year is troubling because they're more likely in their peak earning years and should be utilizing higher catch-up contribution limits to get on track for retirement.”
Sources: ICI, EBRI, BankratePost author: Charles Couch