Inside ASPPA
Almost since the passage of the Coronavirus Aid, Relief, and Economic Security Act (CARES) Act, our industry has been torn between gratitude for the help to those who need it, and concerns for the implications on retirement futures. We recently asked ASPPA members what they are seeing in terms of adoption and take-up rates.
The survey, left open for a period of approximately two weeks, garnered responses from nearly 120 members, 94% of which were third party administrators (TPAs), and 90% that worked primarily with plans that had $10 million or less in assets. Here’s what they told us:
CRD Adoption and Take-Up
The adoption rate on the expanded COVID-19 options remains relatively modest among the clients of TPA respondents to our poll; a slim plurality, 32%, note that “some” of their plan sponsor clients have adopted these, but nearly as many—29%—indicate that “most have not.” Just 5% say that all of their clients have done so. Other responses:
- 16%: A few have.
- 15%: Most have.
- 3%: None have.
“Larger plans adopted CRW; small plans did not,” explained one respondent. Another explained, “Many recordkeepers have the opt-out so it skews the numbers.”
While those responses surely have some impact on take-up rates, asked about the volume of CRW withdrawals compared with normal hardship distributions—well, let’s just say that, at least so far, the take-out rate also seems modest:
- 44%: About the same as normal
- 23%: It’s actually fewer than normal.
- 22%: About 10% higher.
- 5%: About 25% higher.
- 4%: More than 50% higher.
- 2%: About 50% higher.
“As the department manager, this is something that I have been watching closely as I was worried that the volume of requests might spike,” one respondent commented. “I was surprised that it did not!”
“Plans were defaulted to adopt unless they actively chose NOT to adopt CRDs. About 10% of our plans have had active CRD withdrawals. Across the board, we've only had a slight uptick of withdrawals overall,” explained another respondent.
“Out of 250 plans, our termination distributions are down, loans are down and we've only processed two loans under the CARES Act for one business owner and his spouse and only three CARES Act distributions. I am really surprised out how few we have done thus far,” noted another.
“We have 1200 clients and hundreds of thousands of participants. covid19 requests are still in the double-digits,” commented another.
And while we’re a couple of months post-CARES Act enactment, it’s still relatively early. As one respondent commented, “We're talking to clients a lot about their options. It's taking up time, and we have done some amendments, and we have a slight uptick in withdrawals right now. We expect it to increase.”
Another commented, “I've had employers tell me the unemployment benefits are keeping employees afloat. It’s been pretty quiet. Only a couple Covid-19 specific distributions. I have seen more terminated employees taking distributions, but many are rolling the funds over to IRAs or Plans. Maybe they have time on their hands to do this? Employers are taking a wait and see approach. Not adding plan provisions until they have a need.”
Beyond that, another respondent reminds that the impact is somewhat uneven; “Majority of our plans are related to an industry which is considered essential so most participants are still working.”
And the financial support from the federal government has had an impact; “We feel that the participants were receiving unemployment which in some cases was more than their weekly salary, therefore, they did not need to withdraw their 401(k) funds to live.”
Focusing only on the plans that had adopted the provisions, we asked what level of use they have experienced (excluding regular hardship withdrawals, in-service withdrawals and post-separation withdrawals)? Even there, take-up had been modest:
- 47%: Fewer than 1% of participants
- 36%: 1% - 3% of participants
- 11%: 4% - 6% of participants
- 4%: 7% - 9% of participants
- 2%: 10+% of participants
“A few plans, particularly those with considerable layoffs, have had active CRD withdrawals, but across the board, not a large uptick,” explained another.
Another commented, “We have not experienced large call volumes from participants requesting withdrawals.”
Another respondent explained that those volumes were “Mostly non-profit and lower paid workers that have been furloughed. These are typically same employees that would be requesting plan loans during regular times.”
While those volumes appear low, one respondent offered a cautionary note; “It's important to note most employers have not put it out there to the employees that they have added the provision. A lot of platforms automatically used the opt out approach or employers wanted to make sure it was available should an employee come to them. They wanted to avoid a mass looting of the retirement plan.”
Loan Arrangements
We asked separately about the adoption rate of the expanded CARES Act loan provisions, and found comparable trends to that of the distributions, though somewhat lower, with regard to plan adoption.
- 42%: Most have not.
- 32%: Some have.
- 14%: Most have.
- 9%: None have.
- 3%: Yes, all have.
As for loan take-up rates among plans with that new CARES Act provision:
- 59%: It's about the same as normal.
- 24%: It's actually fewer than normal.
- 14%: About 10% higher.
- 2%: About 25% higher.
- 1%: About 50% higher.
“I've had no COVID loan requests,” noted one respondent.
“Most loans that are being requested are still under the $50,000 amount. No ability to pay them back in 5 years. Business owners are the only one's interested in the 100,000 loans,” commented another.
“It's mostly not about new loans. It's about deferring loan payments on existing loans,” explained another respondent.
“Did adopt the stopping of loan repayments - seen about 10% of outstanding loans have repayments paused in plan,” observed one respondent.
“We have had 0 take a COVID loan even when the plan sponsors have adopted the provision,” noted another.
“Mostly just the owners of small businesses taking these loans to cover their costs while being shut-down. Noticed a significant increase of loans being frozen due to COVID furloughs,” commented another.
Another noted, “Only a handful of these have gone through. why borrow with interest when you can essentially borrow tax free with the 3-year payback option?”
Other Comments
“We're not seeing any more than normal rates of loans and withdrawals from most participants. The exception to this are small business owners, who are taking advantage of the higher loan limits to access funds to help keep their doors open.”
“In my area, I think the uncertainty of the pandemic rushed many employers into adopting into these provisions. However, with unemployment benefits, or many employers never shutting down, they reconsidered and tried to reverse their original choices.”
“Most of our plan sponsors took the PPP loan and most of our sponsors have continued to work or will be returning next week. Most of our clients are in PA.”
“Sponsor interest in the COVID provisions was similar to sponsor interest in the hurricane relief options a few years ago. Only a few responded to the information we sent out and basically no interest in making plan changes.”
“Our TPA shop chose to default amend for CRDs & expanded loan relief if loan provisions existed unless the sponsor chose not to. A handful were proactive and said no to amendments, maybe 1%. A handful were waiting for the law to pass and asking for forms for CRD before available, maybe 1%. Another 10% have made use of the provisions, but most employers were unconcerned with the availability to employees.”
“Fortunately, many of our clients in the Southern Tier/Finger Lakes region of NY were able to keep most employees on payroll. As a result, there have been few coronavirus withdrawals and loans. Given that our region is beginning to open up more and more, I'm not sure that we expect the utilization to change. That being said, things could change in terms of withdrawals if the virus surges again in the Fall of 2020.”
“If the closures last much longer, we think more and more businesses will furlough their employees, and there will be more and more activity.”
“People are starting to go back to work so for the ones who aren't we may see an uptick in distributions but I'm not expecting a lot.”
“I worry that the take-up rates will increase as businesses spend the PPP or employees spend their stimulus money.”
“With restrictions continuing to ease locally I don't foresee additional plans, which we administer, adding these provisions in the near future.”
“Anticipating rates to increase.”
“As states relax stay-at-home rules, I think take-up rates will decline.”
“It may worsen as the stay at home continues.”
“I think there may be a slight uptick over the next few months.”
“I'm hoping we all get back to work soon so that there is not an uptick in requests and that people keep protecting their ability to retire by not pulling out these funds.”
“We've only had 3 plans out of 250 adopt any CARES Act provisions and we don't see that increasing at this point.”
“The loan provision for delayed payment has been the most utilized provision.”
“Clients are a bit hesitant to adopting CARES Act provisions. Some had changed mind and adopted after rejecting the provisions.”
“The provisions, other than loan suspensions, have low adoptions rates and in many cases, once explained to sponsors, they realize they are not needed or they are contrary to retirement readiness messaging.”
“I think the PPP loan has helped a lot of my clients keep their employees on payroll so they don't have as many qualified individuals as we first thought.”
“Since in the real world, every distribution this year can be self-certified by the participant as a CRD and treated as such on their tax return, it really it not much necessary for the plan to be amended unless it wants to change to allow EARLY distributions, which none of my clients have expressed interest in. Therefore, there is just no real need to add CRD language to the plan in almost every circumstance.”
“The peak has passed and don't expect any change in the volume of distribution or loan requests.”
“Remember that amendment not required until 12/31/22, so no formal adoption. We used an opt out approach with our clients. ALSO… very modest percent of our plans allows for loans.”
“For whatever reason, we're not seeing the tick up in activity like we expected when it comes to these distributions. Most the use has actually been from company owners who need working capital to keep the business open as opposed to rank and file employees.”
“Utilization of both CRW's and CRL's has been less than I anticipated with the CoVid-19 outbreak and passage of the CARES Act. My sense is that many participants are collecting unemployment benefits, and so have not experienced a huge drop in income. Employees are also now beginning to return to work, or are being paid by their Employer with PPP funds. So my sense is that there has not been as much income disruption as originally anticipated.”
Our thanks to all who participated in this survey!
You Can Still Participate!
If you’d like to weigh in, the survey is still open at https://www.research.net/r/Y6VVHZP
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