Participants Stuck With the Markets in 2015

A new study from the Investment Company Institute (ICI), “Defined Contribution Plan Participants’ Activities, 2015,” shows the stock market fluctuations of the last year have done relatively little to sway the commitment of current 401(k) account owners.

“Defined contribution (DC) plan participants continued to contribute to their 401(k)s paycheck-by-paycheck in order to save and invest in their future during 2015,” researchers explain, “even as stock market prices changed little over the first half of the year, fell in the third quarter, and recovered in the fourth quarter.”

According to the ICI research, the vast majority of DC plan participants continued contributing to their plans throughout the year, “with only 2.6% of DC plan participants stopping their contributions in 2015, compared with 2.8% in 2014 and 2.7% in 2013.” The research further shows most DC plan participants stayed the course in their asset allocations, as stock values were essentially flat for the year.

“In 2015, 9.7% of DC plan participants changed the asset allocation of their account balances and 7.6% changed the asset allocation of their contributions,” ICI says. “These levels of reallocation activity were in line with reallocation activity observed over the past several years.”

ICI’s research backs up the idea that the retirement planning industry is still, in some important ways, on the front-end of the DC plan revolution. Put simply, the people who will rely primarily on 401(k)s or other DC accounts as the primary source of retirement income haven’t actually started retiring yet in big numbers. As such, “only 3.4% of DC plan participants took withdrawals in 2015, compared with 3.6% 2014 and 3.5% in 2013.”

One positive sign in the data is that “only 1.6% of DC plan participants took hardship withdrawals during 2015, similar to the past few years,” and loan activity was slightly lower than in 2014. While trending down, loans are still too prevalent, ICI warns. “At the end of December 2015, 17.4% of DC plan participants had loans outstanding, compared with 17.9% at the end of December 2014. Loan activity continues to remain elevated compared with seven years ago. At year-end 2008, 15.3% of DC plan participants had loans outstanding.”

ICI concludes that the coming decade will be a major test for DC plans—and that significant evolution in both the asset accumulation and spending phases of retirement should be anticipated.

Additional findings are available on the ICI’s 401(k) resource page.