Retirement, Broad Financial Fallout From COVID Continues

A defined contribution industry survey finds lasting financial effects to retirement plan participants.

The financial fallout resulting from the COVID-19 pandemic has increased retirement anxiety for plan participants, according to an MFS Investment Management survey and data cited in the report.

More than 65% of workers surveyed think they will need to save more than planned because of the impact of COVID-19 on the economy, 52% say they will have to work longer than planned and 11% took an early withdrawal from a defined contribution retirement plan due to financial stress, according to the MFS Investment Management DC Pulse survey for the first quarter of 2023. The response totals represent the share of respondents who responded that they either somewhat agree or strongly agree with each statement.

“Consider if your plan has the tools and resources available to help participants stay on track,” the MFS Investment Management survey advised plan sponsors.

MFS recommended that plan sponsors consider if their retirement plan makes available the optimal supports to help participants stay on track and save for retirement.

MFS cited data indicating that many participants’ financial health is low overall, as 32% of Americans cannot afford a $400 emergency expense, according to 2022 data from the Federal Reserve’s Economic Well-Being of U.S. Households Survey. The finding is supported by Cerulli Associates data from Q1 2023 showing that 38% of individuals say not saving enough for retirement was either the most or second most significant source of financial stress.

State of Financial Wellness

The MFS survey cited Defined Contribution Institutional Investment Association data on the state of financial wellness offerings that gauged the benefits offered to workers.

More than half, 55%, of survey respondents said that if they were given $1,000, they would add the money to emergency savings as opposed to another option, according to Cerulli Associates data cited by MFS.

Emergency savings tools or accounts are currently offered by 40% of plans, 12% do not have the benefit but are very likely to add it, and 33% do not provide the benefit but are moderately likely to add it. Additionally, 33% of employers provide financial wellness offerings related to managing student loan debt, 20% do not but are  very likely to add it, and 27% are moderately likely to add it, according to DCIIA.

The research showed that 77% of plan sponsors provide access to financial planning, 11% do not currently offer access but say they are likely to add it, and 9% do not offer access but are moderately likely to add the benefit.

The SECURE 2.0 Act of 2022 included provisions related to emergency savings.

“Starting in 2024, employers can make matching contributions to a DC plan on qualified student loan payments,” the MFS survey advised. “The contributions will be treated as elective contributions for nondiscrimination testing and safe harbor rules, and plan sponsors can rely on an annual participant certification” about the loans being repaid.  

According to the survey, most employers are already making an effort to help with financial concerns: 71% of employers offer budgeting assistance and debt, 9% do not offer the benefit now but are very likely to add it, and 9% are moderately likely to add it. Similarly, health care and health savings account planning is provided by 70% of plans, 9% do not offer the benefit but very likely will add it, and 6% of employers do not offer the benefit but are moderately likely to add it, according to MFS data.  

MFS Investment Management gathered global data for the proprietary portion of the survey from the 2022 MFS Global Retirement Survey. MFS engaged Dynanta, an independent third-party research provider, to conduct a study among 1,000 defined contribution plan participants in the U.S., aged 18 and older, employed at least part-time and actively contributing to a 401(k), 403(b), 457 or 401(a) plan.