ICI Finds Patterns in Retirement Plan Participant Loan Activity

Following the recession of 2008/2009 defined contribution (DC) plan participant loan activity went from a low of 15.3% of participants with an outstanding loan in 2008, when the Investment Company Institute (ICI) first started its survey of DC plan recordkeepers, to a high of 18.5% of participants with an outstanding loan in 2011.

Since then, loan activity has edged down, reaching 16.4% of DC plan participants with an outstanding loan in the first quarter of 2018.

ICI finds that two factors appear to influence DC plan participants’ loan activity: reaction to financial stresses and a seasonal pattern. The increase in loan activity following the recession is explained by financial stresses.

However, loan activity appears to have a quarterly seasonal pattern: the first quarter of the year tends to have lower percentages of DC plan participants with loans outstanding compared with later quarters. Loan activity edged down in the first quarter of 2018 from 16.7% of participants with an outstanding loan in the fourth quarter of 2017, following the seasonal pattern ICI has observed over the past several years.

Other activity in Q1 2018

In the first quarter of 2018, 1.3% of DC plan participants took withdrawals from their DC plan accounts, with 0.5% taking hardship withdrawals, according to ICI’s survey of a cross section of recordkeeping firms representing a broad range of DC plans and covering more than 30 million employer-based DC retirement plan participant accounts. These levels of activity are similar to those observed in the first quarter of 2017.

In the first quarter of 2018, 1.1% of DC plan participants stopped making contributions, the same share as in the first quarter of 2017. ICI notes that it is possible that some of these participants stopped contributing because they reached the annual contribution limit.

In addition, during the first three months of the year, 5.1% of DC plan participants changed the asset allocation of their account balances, compared with 4.6% in the first three months of 2017. And, 3.5% of DC plan participants changed the asset allocation of their contributions in Q1 2018, compared with 3.8% in Q1 2017.