In March 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed, with specific implications for defined contribution participants.
The key provisions of the CARES Act are:
The Public Retirement Research Lab surveyed recordkeepers about public sector implementation and use of CARES Act loan and distribution provisions, as well as participant saving and investment behavior during the pandemic.
Recordkeeper survey respondents represented approximately 75,000 public sector defined contribution plans and more than 10,000,000 participants as of July 2020.
The key provisions of the CARES Act are:
- Coronavirus-related distributions (CRDs) are allowed through December 2020, with a repayment period of three years.
- Loan maximums were allowed to be raised to as much as $100,000 through September 22, 2020.
- Loan repayments can be delayed for one year.
The Public Retirement Research Lab surveyed recordkeepers about public sector implementation and use of CARES Act loan and distribution provisions, as well as participant saving and investment behavior during the pandemic.
Recordkeeper survey respondents represented approximately 75,000 public sector defined contribution plans and more than 10,000,000 participants as of July 2020.
The average percentage of state and local defined contribution (DC) plans that implemented coronavirus-related distributions (CRDs) under the CARES Act rose to 47% in July, from 39% in April. The range was wide, with some recordkeepers reporting that virtually all of the public sector plans on their system had CRDs and others reporting a nominal amount.
On average, 0.82% of state and local plan participants took CRDs in July, up from just under 0.50% in April. The average CRD dollar amount dropped, however, to $11,542 in July, from $12,666 in April.
According to the 2019 NAGDCA Perspectives in Practice Survey, the median of average account balances reported by public sector plans as of December 31, 2018, was $45,505. This implies the typical CRD taken was a quarter of balances.
On average, 0.82% of state and local plan participants took CRDs in July, up from just under 0.50% in April. The average CRD dollar amount dropped, however, to $11,542 in July, from $12,666 in April.
According to the 2019 NAGDCA Perspectives in Practice Survey, the median of average account balances reported by public sector plans as of December 31, 2018, was $45,505. This implies the typical CRD taken was a quarter of balances.
Slightly fewer federal plan participants took a CRD, but the average distribution amount was much larger than the distribution amount taken by state and local plan participants. The typical plan balance of federal employees is larger than that of state and local employees, however, at $150,000.
State and local DC plans implemented a higher number of deferred loan repayments versus higher loan maximums. This may reflect plan sponsors’ concerns about plan leakage from greater loan access.
Initially, public DC plan sponsors may have interpreted the $100,000 CARES Act loan maximum to be mandatory. Subsequent clarification that the higher loan maximum isn’t mandatory might explain the declining proportion offering these higher loan maximums.
The average percentage of state and local DC plan participants changing their deferral rate was significantly higher in March than in subsequent or prior months.
State and local DC plans experienced an uptick in monthly investment election changes in March. The average number of investment election changes nearly doubled from the prior month, rising to 2.7% from 1.4% in February. Similarly, investment election changes by federal plan participants increased to 4.8% in March, from 2.6% in February. Investment election changes by federal plan participants spiked again in June.
