Managing Today’s DC Plans

Impact of CARES Act Distribution Provisions on Government DC Plans

More recordkeepers reported implementing deferred loan repayments

Employee Benefit Research Institute reveals findings of its recent survey or federal, state and local government DC plans. Read the full report here.

In March 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed, with specific implications for defined contribution participants. The Public Retirement Research Lab (PRRL), a joint program of EBRI and NAGDCA, subsequently surveyed federal, state, and local government defined contribution (DC) plan recordkeepers about their experience with CARES Act loan and distribution provisions as well as participant saving and investment behavior during the pandemic.

We found the average percentage of state and local government DC plans that implemented coronavirus-related distributions (CRDs) under the CARES Act in April was 39 percent, rising to 47 percent by July 2020. The range was wide, with some recordkeepers reporting that virtually all of the government plans on their system had CRDs and others reporting a nominal amount. Based on the availability and utilization of CRDs reported by the recordkeepers, we calculated that just under half a percent of state and local government plan participants on average took CRDs in April 2020, rising to 0.82 percent by July 2020.

The average dollar amount was higher, however, in April at $12,666, declining to $11,542 by July. In contrast, a slightly lower share of participants in the federal government took a CRD, but the average distribution was much larger than for state and local government plan participants. However, it is important to consider that the plan balance of federal workers is larger than that of state and local workers at $150,000.

Deferred Loan Repayment

In addition, more recordkeepers reported implementing deferred loan repayments under the CARES Act vs. higher loan maximums for state and local government plans. This may reflect plan sponsors’ concerns about additional plan leakage from greater loan access. Initially, 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 over time. The study also found the average percentage of state and local government DC plan participants changing their deferral rate was significantly higher in March than in subsequent or prior months.

The average percentage of state and local government defined contribution (DC) plans that implemented coronavirus-related distributions (CRDs) under the CARES Act in April was 39 percent, rising to 47 percent by July 2020...

When it comes to patterns in monthly investment election, state and local government DC plans saw an uptick in monthly investment election changes in March. The average number of investment election changes nearly doubled from the prior month, going from 1.4 percent to 2.7 percent. Similarly, the proportion of federal participant investment election changes increased from 2.6 percent of workers making a change to 4.8 percent making a change between February and March. For federal workers, investment election changes spiked again in June.

Excerpts from the Public Retirement Research Lab Study

The average percentage of state and local government defined contribution (DC) plans that implemented coronavirus-related distributions (CRDs) under the CARES Act in April was 39 percent, rising to 47 percent by July 2020. The range was wide, with some recordkeepers reporting that virtually all of the government plans on their system had CRDs and others reporting a nominal amount.

Based on the availability of coronavirus-related distributions (CRDs) and utilization of CRDs reported by the recordkeepers, we calculate that just under half a percent of state and local government plan participants on average took CRDs in April 2020, rising to 0.82 percent by July 2020. The average dollar amount was higher, however, in April at $12,666, declining to $11,542 by July.

According to the 2019 NAGDCA Perspectives in Practice Survey, the median of average account balances reported by government plans as of December 31, 2018, was $45,505. That would imply that the typical amount of distribution taken is a quarter of balances.

More recordkeepers report implementing deferred loan repayments under the CARES Act vs. higher loan maximums for state and local government plans. This may reflect plan sponsors’ concerns about additional plan leakage from greater loan access.

Initially, 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 over time.

Read the full report here.