Despite the broad disruption the coronavirus has caused, 401(k) plan participants generally are staying the course. Less than 10% of participants in plans at T. Rowe Price have stopped contributing or reduced their savings rates.1
In addition, participants are not panic trading due to market volatility, especially those who invested in target date investments.
Participants who were 100% allocated to target date investments (i.e., many who were auto-enrolled) were less likely to trade than the general plan population. In contrast, those who did not invest were more likely to transact. These latter investors are most likely to be harmed by trying to time the market, particularly since the market has recovered from the lows reached in March 2020. Though plan design has proven useful to many, some investors still succumbed to the often counterproductive instinct to seek safety in times of uncertainty.
Despite the apparent good news for saving and investment allocation, there are some concerning trends to be mindful of as the crisis plays out over the longer term.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act, signed into law in March 2020, included optional provisions to give participants greater access to their plan savings in order to address a coronavirus-related financial need. The optional provisions include:
Participant usage of the CARES Act provisions has been relatively low for plans at T. Rowe Price as of July 31, 2020. However, among those participants who took advantage of one or more of the provisions, the amounts they are taking is trending upward.
Consumption of T. Rowe Price’s educational content on the participant website has increased during the market event, with financial wellness a key topic of interest.
Plan sponsors can support participants during the pandemic.
Source: T. Rowe Price Retirement Saving and Spending Study, 2019.
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