Sharing updated observations since the enactment of the CARES Act.
Call volumes picked up at the height of market volatility, but few participants took action
At the height of market volatility, recordkeepers reported that service center call volumes increased by up to 30% and that the average call length was up significantly, increasing more so based on the volatility of the day. Recordkeepers reported that they were managing the longer call wait times by implementing recorded messages to direct participants to alternative sources of information as well as implementing virtual queue with callback so that participants would not have to remain on hold.
As more data has become available, a clearer picture is forming that most participants have been staying the course and maintaining a long-term perspective. While call volumes remain at elevated levels, few participants are making changes to their portfolios.
Interestingly, of those transacting, no clear trends can be identified. We have anecdotally heard that some participants that are closer in age to retirement have moved their money out of equities to bonds and cash options. While conversely, we have also heard that some participants are moving into equities. Coincidently, Vanguard recently released an article on their observations of the trade activity among their U.S. self-directed individual investors from the market peak on February 19, 2020 to March 20, 2020. In this article, Vanguard noted that of those individuals making trades, 7 out of 10 individuals moved into equities.
Prior to the enactment of the CARES Act, participants had started inquiring about loans and distribution options, but recordkeepers had not seen a spike in activity at that time. There continues to be many plan sponsors that are still in the process of deciding what provisions of the CARES Act will be made available to their participants. As such, it is premature to extract meaningful observations as to whether participants will take advantage of the options that the CARES Act provides and to what extent they will do so, but early adopters have started to see some activity.
Employers Cutting Match and Potentially Unintended Consequences
In late February and into March as the COVID-19 pandemic became an unfortunate reality, many companies had to quickly adapt to the changing circumstances. Some companies instituted remote working policies for the first time and some others had to make the difficult decision to furlough or layoff parts of their workforce.
Using the 2008 financial crisis as a guide, it was expected that some companies would suspend, defer or decrease the amount of money they match in workers’ retirement accounts this time around. Surveys conducted by the Profit Sharing Council of America (PSCA) and PLANSPONSOR indicate that between 20% and 33% of companies have reduced or suspended, or are considering reducing or suspending, the employer match to the retirement plan.
On a final note, it is worth mentioning that the decisions plan sponsors and participants are making now may potentially affect ADP and ACP test results later. Decisions like reducing compensation, cutting or suspending employer match, as well as participants potentially reducing their deferral rates can adversely impact these nondiscrimination test results. Projection testing may be beneficial, particularly for safe harbor defined contribution plans that choose to suspend or eliminate employer match and safe harbor nonelective contributions.