Saving Through a Crisis: How LMI Retirement Plan Participants Are Weathering COVID-19

Saving Through a Crisis: How LMI Retirement Plan Participants Are Weathering COVID-19

Wednesday, July 8, 2020

In the months since the outbreak of COVID-19, the pandemic has continued to expose and exacerbate cracks in people’s financial lives. In our latest research, Commonwealth partnered with the Defined Contribution Institutional Investment Association’s (DCIIA) Retirement Research Center on a series of surveys to better understand how low- to moderate-income (“LMI”) plan participants are handling their retirement savings during the pandemic and the impact to their financial security. 

Read on for four key findings from our first survey* in this series and how plan sponsors (employers) and record keepers can help people keep their retirement contributions where they belong.

  1. Having little or no liquid savings increases the likelihood that participants will take a negative action in their retirement savings: A regression of the survey results** found that respondents with lower levels of liquid savings are more likely to have taken or plan to take a 401(k) or hardship withdrawal or to pause or reduce contributions. The same regression shows that older plan participants, who are closer to drawing on their savings for retirement, and respondents who receive a full employer contribution match (and therefore would lose out on “free money” if they reduced or stopped their contributions) are less likely to take negative retirement actions.

  2. However, so far, few LMI 401(k) participants have tapped their accounts: Only 5% of respondents had withdrawn from their account thus far, but 7% plan to do so in the coming weeks. Respondents are more likely to have paused or stopped contributions (10%) compared to stopped paying bills (8%), borrowed from friends or family (7%), or sold any possessions (7%). Other surveys have shown that about 20% of furloughed and 50% of laid off employees plan to tap their retirement savings, and our own survey found that 8% of people with reduced income have withdrawn from their account, versus 2% of those with unchanged income.

  3. The first action LMI plan participants are taking is to reduce their expenses: Well over half of respondents (70%) have reduced their expenses. Those making less than $30,000 are less likely to have cut expenses, likely because there is little room to reduce expenses in their budget.

  4. Plan participants are using credit cards as emergency savings: Further signifying the lack of emergency savings for many consumers, 15% of respondents have turned to credit to meet expenses during COVID-19. Respondents of color are more likely to have increased their credit card charges (20% vs. 12% of white respondents).

How Can Plan Sponsors and Record Keepers Help?

The short- and long-term impacts of the pandemic on working Americans are largely unknown, but there are actions plan sponsors and record keepers can take to help people weather this crisis and use their retirement savings only as a last resort. 

Plan sponsors can help by:

  • Reminding employees of pre-existing financial wellness resources, including financial advising from record keepers. Research has shown that these resources, when well-designed, can improve employees’ outcomes at work and in their financial lives.
  • Maintaining their contribution matches to the extent possible. Data from 2008 indicate that when employers pause matches, 20% of plan participants also stop contributions, jeopardizing their retirement readiness.
  • Asking their record keepers to provide an emergency savings solution for their employees.

Record keepers can help by:

  • Offering emergency savings accounts that are highly liquid and have no minimums or withdrawal fees. Offering these accounts now will help plan participants ride out this crisis.
  • Supporting employers in messaging financial wellness tools to employees.

This is a critical moment to build on Americans’ propensity to save during COVID-19 and regret for not having built emergency savings earlier. A growing number of record keepers have begun offering emergency saving tools: so far, two providers, John Hancock and MassMutual, have joined Prudential in offering new emergency savings solutions in 2020. This research demonstrates that although LMI plan participants have mostly turned to spending levels and credit cards to find financial relief during the pandemic so far, more will be turning to their retirement plans for liquidity, particularly those without an emergency savings buffer. Offering emergency savings along with retirement accounts will help decrease withdrawals, including both Coronavirus Related Distributions (CRDs) and the general hardship withdrawals that have increased in recent years, while meeting plan sponsors’ interest in more financial wellness features on record keeper platforms. Taking decisive, evidence-backed action now is the right move for record keepers operating in this new normal.

* The first survey, fielded between April 30 and May 9, collected 481 responses from LMI defined contribution plan participants (between $20,000 and $75,000 in household income). Respondents must 1) have traditional (W-2) part- or full-time employment or had as of February 1, 2020 and 2) have a defined contribution plan that they currently contribute to or have contributed to on February 1, 2020. The plan must be sponsored by their current employer or their employer as of February 1, 2020.

** Due to some blank (“Not sure”) responses, the sample size for the regression was 410.

Commonwealth will continue to track LMI plan participants’ actions in the coming months. Through the BlackRock’s Emergency Savings Initiative, Commonwealth and its industry partners are exploring the introduction of new emergency savings solutions at scale, including working with record keepers to develop and launch emergency savings tools both in-plan and out-of-plan. If you are a plan sponsor or record keeper interested in offering emergency savings and would like to learn more about how you can support your plan participants, contact Nick Maynard at

BlackRock’s Emergency Savings Initiative

BlackRock announced a $50 million commitment to help millions of people living on low to moderate incomes gain access to and increase usage of proven savings strategies and tools – ultimately helping them establish an important safety net. The size and scale of the savings problem requires the knowledge and expertise of established industry experts that are recognized leaders in savings research and interventions on an individual and corporate level. Led by its Social Impact team, BlackRock is partnering with innovative industry experts Common Cents Lab, Commonwealth, and the Financial Health Network to give the initiative a comprehensive and multilayered approach to address the savings crisis. UPS, Uber, Mastercard, Etsy, Brightside, Arizona State University, and Acorns have joined BlackRock’s Emergency Savings Initiative to help their employees, customers, gig workers, and college students take the essential first step toward long-term financial well-being.