401(k) savers pull back on account trading

Retirement plan participants left their accounts largely untouched in May, marking the lowest level of activity since the COVID-19 crisis hit the U.S.

As markets bounced back, investors no longer showed the signs of panic evident in March, when many traded stock-heavy funds for fixed income, according to a report this week from Alight Solutions.

There were no days with above-average levels of 401(k) trading in May, according to Alight, and over the course of the month, 0.018% of account balances were traded on a daily basis. That’s down from 0.023% of balances traded daily in April and 0.078% in March, the company noted.

When participants did trade, they showeda slight preference for fixed income, with 13 of the 20 market days showing movement toward the asset class, according to Alight.

Between January and March, 14% of plan participants made trades. During that time, the average plan balance fell by 17%, and participants saw a median return of -20%, according to Alight.

A separate report this week from Vanguard suggests activity was more subdued, excluding managed accounts. According to Vanguard, just over 5% of participants made investment allocation changes in their retirement accounts during the first four months, excluding those in managed accounts. Still, that is up from about 3% who made such changes during the first four months of 2019, Vanguard noted.

Vanguard saw the average defined-contribution balance in plans it manages fall from about $106,500 at the end of 2019 to $102,000 at the end of April, while the median balance fell from $25,800 to $25,600.

Over 12 months, median balances were nonetheless up by 5% for people who had accounts over that time, and the average total return was 1.6% from April 2019 to April 2020, the company said.

During the first quarter of 2020, a big chunk of savers made other changes to their accounts. Just over a quarter of people in Alight’s record-keeping book of business adjusted their contribution rate, with 18% increasing the rate, 6% reducing it and 2% stopping contributions altogether, the company said.


Leading up to the COVID-19 crisis was “the decade of the DC investor, and it was capped with 2019 being the strong year out of the 10,” according to Alight’s report. Last year, DC participants saw a median return of 22.4%, while the median annualized return over 10 years was 8.9%, according to the plan provider.

Between 2009 and 2019, the average DC plan balance increased by 72%, going from $71,000 to more than $122,000, the company reported.

Over the 10-year period, the percentage of plans using features such as automatic enrollment and automatic annual contribution escalation went up. That helped boost the average plan participation rate from 76% to 81%, according to Alight.

Further, more savers are funneling enough into their plans to qualify for the full amount of their employers’ matching contributions. Last year, 81% of participants in Alight plans received full matches, up from 72% in 2010, according to the company.

Written by Investors Wallets

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