Posted by: Lauren Young on January 15, 2009
There’s even more evidence that investors are curbing retirement plan contributions.
Consulting Mercer giant says more retirement plan participants are requesting withdrawals compared to last year—requests rose 59% in November and December of 2008, according to a press release from Mercer.
And since July, there has been a steady increase in the number of participants who have cut their retirement contribution rate to zero. Overall, Mercer saw more participants decrease rather than increase their contribution rates throughout 2008—“a trend rarely seen in more stable economic times,” Mercer says. These transactions, however, still represent a small fraction of overall plan participants, averaging less than 1% in both cases.
“The small number of people represented in these findings is the good news,” Eric Levy, Retirement Business Leader of Mercer’s outsourcing business, said in the press release. “What should sound the alarm with plan sponsors, however, is the growth trend, not the absolute figures. As most experts would agree, withdrawals from 401(k) type retirement plans and reducing participant contributions to zero are two actions that are completely counter to preparing for retirement. This may point to the dire straits that a small but growing number of participants find themselves in where withdrawals and zero contribution rates are seen as a type of financial last resort.”
Mercer believes that in order to counter these trends, plan sponsors should increase communication to participants regarding the benefit of long-term retirement savings, highlight the availability of educational and planning tools such as websites and seminars, and re-evaluate plan designs based on current participant behavior and trends.
Other Mercer findings:
Some 28% of 401(k) retirement plan participants have seen a 30% or more decrease in their account balances in 2008 through December.
Despite these results and the general economic turmoil, relatively few (14%) retirement plan participants conducted any kind of exchange in their 401(k) accounts in 2008. This group, however, shifted assets dramatically from equity markets into capital preservation funds. In fact, compared to the same time frame last year, balances and plan contributions in stable value and money market funds grew 70% compared to 2007, while equity funds contributions decreased.
Mercer’s findings are based on the January to December 2008 behavior of the 1.2 million participants for whom it administers employer-sponsored defined contribution retirement plans.