How much did participants withdraw?
The average distribution was $15,700, and the median was $6,500. However, as nearly one-third of participants who initiated a withdrawal took multiple distributions, the average participant distribution was approximately $24,600, with a median of $13,300.
Nearly 1 in 4 participant distributions were for less than $5,000, and 60% of all withdrawals were for less than $20,000. Withdrawals of more than $30,000 were less common, and only 4% of participants who initiated a CRD withdrew the maximum amount of $100,000.
When examining the distribution amounts based on the percentage of a participant's balance, the average distribution represented 55% of a participant's total balance. About 1 in 4 distributions were for nearly all or 100% of the account balance, whereas one-half of withdrawals were for less than 50% of their balance.
Participant adoption rates also varied by demographics. Participants between the ages of 35 and 54 were the most likely to initiate a CRD, while younger and older participants were less likely. Participants with an income between $30,000 and $75,000 were also more likely to request a CRD, and participants with a lower or higher income were less likely. Participants with an account balance between $10,000 and $50,000 were more likely to request a CRD when compared with those with larger account balances.
When examining adoption by sector, participants in the transportation, utilities, and communications industries were most likely to initiate a withdrawal (10.6%), as well as participants in the agricultural, mining, construction, and manufacturing industries (8%). Participants in business, professional, and nonprofit industries were the least likely to access plan assets (2.3%).
The corrective power of plan design
As of year-end 2020, 54% of all plans automatically enrolled their employees. When segmenting the participants by plan design, 6.4% of participants in automatic enrollment plans initiated a CRD, compared with 4.5% in voluntary enrollment plans.
Automatic enrollment is a proven plan design feature that improves employee saving and investment behaviors. However, it is important to note that as plans have increasingly implemented automatic solutions in an effort to improve retirement outcomes, more participants now have an additional resource that may be accessed in times of emergency.
Accessing plan assets before retirement should be a last resort for participants. And while a small fraction have accessed their retirement savings, those participants, who may have faced a financial shock, are better off than those who did not have any retirement savings cushion during this period.
Calculating the impact on retirement
Participants who accessed their retirement assets early may experience a shortfall upon reaching retirement. As previously mentioned, the median participant distribution amount was $13,300. The median age was 42, and the median income was about $61,400. Assuming a real investment return of 4%, the median participant distribution would grow to approximately $35,000 over the next 25 years. For the typical participant, this return would represent the future financial impact at retirement.
¹ An "affected individual" is defined by the CARES Act as someone:
- Who is diagnosed with COVID-19 by a CDC-approved test,
- Whose spouse or dependent is diagnosed with COVID-19 by a CDC-approved test, or
- Who experiences adverse financial consequences as a result of being quarantined; being furloughed, laid off, or having work hours reduced as a result of COVID-19; being unable to work due to lack of child care due to COVID-19; closing or reducing hours of a business owned or operated by the individual due to COVID-19; or
- Other factors as determined by the Treasury Secretary.
- All investing is subject to risk, including the possible loss of the money you invest.