Growth in Hardship Withdrawals Slows

Only 28% of plan participants took a negative action (stopped or decreased contributions) – compared to 67% and 33% during the third quarter of 2010, respectively, according to the Bank of America Merrill Lynch 401(k) Contribution Activities Scorecard for the third quarter.

Kevin Crain, Head of Institutional Retirement & Benefit Services, tells PLANADVISER that the data examines two broad areas: in-plan activity and distribution activity.

Crain says a positive indicator that the economy is improving is that the ratio between participants taking positive actions versus negative actions continues to get stronger; more people are taking positive steps, while fewer people are taking negative ones.

The other area of analysis, distribution activity, shows a more complex picture.“If you look back at loan activity on a year-over-year basis, there is a pretty steady appreciation on new loan issuances. This year, we’ve seen a decrease in the number of loans issued by 4%.  It’s the first time we’ve seen that statistic not grow since 2007,” says Crain.

Hardship withdrawals continue to rise year-over-year, just at a slower growth rate than in previous years.  This year the growth rate is 8%, says Crain, but in previous years it has been higher.

Crain says overall, the number of participants taking loans or hardship withdrawals is a small minority of the bank’s total number of 401(k) participants; out of about 1.5 million participants, only about 100,000 have taken a loan from their balance, and 27,000 have taken a hardship withdrawal.

BofA provides data from its Retirement & Benefit Plan Services division quarterly, analyzing participant activities within its proprietary 401(k) business, which services approximately $85.8 billion in total plan assets. The data also includes plan sponsors’ adoption of offered products and services designed to encourage greater use of employer-sponsored retirement savings plans.

Key statistics from this quarter's Scorecard include:

• A 17% year-over-year increase in plan sponsor adoption of BofA’s Advice Access service, which offers saving and investment advice unique to an individual’s personal situation and life stage
• Since 2007, 22% of plans offering auto enrollment have made one or more design changes to encourage additional positive behaviors among participants, including adding Auto Increase, increasing default contribution rates, and/or expanding their offering to include all eligible employees not participating.
• Through the first nine months of 2011, new loan issuance transactions decreased by 4% while total amount borrowed stayed relatively the same when both were compared to the same period in 2010. Both of these numbers represent record lows for the first three quarters of the year since 2007, the earliest year data was reviewed for this report.
• In contrast, through the first nine months, hardship withdrawals and the total amount distributed were up 8% and 2% respectively over the same period in 2010. Both numbers represent record highs for the first three quarters of the year since 2007.