How COVID-19 has affected retirement plan sponsors and participants—our July update

The stock market in July may have landed at the same level as it was the previous year, but the business environment couldn’t be much more different. We asked our retirement plan sponsors how the pandemic is affecting their businesses and how they see the future. 

Half of our clients said their business has been highly or extremely affected by COVID-19, and 28% said they’d felt little or no impact. Their thoughts on when they think their respective industries will return to normal don’t foretell a quick recovery, with 30% expecting normalcy within the next 6 months and 30% expecting it to take 7 to 12 months.

In addition to affecting an organization’s finances, the pandemic forced a big change in the way many of us work—with those who can do so working from home. About 30% of our retirement plan sponsors are in businesses that couldn’t adopt the work-from-home model—such as doctor’s and dentist’s offices, frontline and essential businesses, manufacturing, and construction. But among those who did, most plan to continue some mix of working from home when business returns to normal. 

With so many companies working from home and restricting travel, meetings have gone virtual. With the right meeting app, virtual meetings can help people accomplish a lot of the same goals as an in-person meeting—and at a much lower cost. There will always be some meetings that are better in person, such as when tough negotiations make it more important to really capture body language and facial expressions. But according to our clients, it looks like virtual meetings will continue to have a place in a post-pandemic world.

Participant behaviors in July reflect that we’re indeed in a pandemic and that its effects are felt unevenly. Although very few participants are taking action, those who do are responding to the current climate. 

In July, participant call volumes were higher than in January, with Coronavirus Aid, Relief, and Economic Security (CARES) Act provisions a top issue, but they’ve receded since their June peak. Visits to our website have gone down, but traffic on our mobile app is up 10% over January.

Reflecting the changes in the stock market, 2.1% of participants reduced their contributions in July 2020—the same as in July 2019. This is much lower than the 3.4% who cut back on contributions in March 2020.

The pandemic, however, is not slowing down, and participants are still looking to the CARES Act and their retirement plans for relief. May, June, and July saw the largest numbers of participants taking coronavirus-related distributions (CRDs), with the average amount taken per participant of $20,400 each month. Although less than 1% of participants have taken a CRD, overall, retirement plan withdrawals are 57% higher since last July and 37% higher since January.

Conversely, loans taken have decreased as CRDs have increased—although the average loan amount has gone up, from $10,037 in January to $11,990 in July (after peaking in May at $13,452).

In July, less than 1% of participants made changes to their investments—very similar to last July. But—perhaps because of all the uncertainty of the last few months—the changes they made were different from a year ago.

The largest changes? More people moved from diversified portfolios to target-date funds (TDFs) and from stable value/fixed income to TDFs. And fewer people moved from diversified portfolios to equities. This could signal that people recognize the importance of diversification to get their long-term savings through a volatile market. But it also suggests many see the value of having a TDF, with the diversification managed by a professional, as opposed to having to do it themselves.

For financial professionals, staying visible remains important. Whether your clients are working from home or on the front line, they continue to need your guidance. Use virtual meetings to help your plan sponsors and participants navigate the uncertainty—and regulations—that came with the pandemic. Set up time to make sure both are aware of the approaching CARES Act deadlines. And with participants turning to their retirement plans for relief, make sure they understand the impact of withdrawals of any kind on retirement readiness, and help them maintain focus on their long-term saving strategies—even in times of volatility. The value of a trusted partner is real—even when the meeting is virtual. 

^{1 “The Employment Situation—July 2020,” U.S. Bureau of Labor Statistics, August 2020.}

^{All participant data mentioned above is John Hancock’s internal data as of July 31, 2020, for the open-architecture platform only. As of March 31, 2020, the open-architecture platform included approximately 1.3 million participants and 1,963 plans.} 

^{Plan sponsor data is from John Hancock’s survey in July 2020.}

^{Fund categories were defined as target-date fund, stable value/fixed income, growth and income, equity, asset allocation, and other. A participant in ≥2 fund categories was labeled as diversified. A participant who changed from ≥2 fund categories to ≥2 other categories—or asset allocation alone—was labeled as having rediversified.}  

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