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The Coronavirus Distribution Isn’t good for participants and the business

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As the turd in the punch bowl as I affectionately call myself, I am a little too frank on what is going on in the 401(k) industry.

 

The Coronavirus pandemic is something that hasn’t been seen in this country, probably since World War II. Right now, we don’t know how many people will lose their jobs or be furloughed during this time. While I’m glad that distributions to participants negatively impacted by Coronavirus won’t get the early distribution penalty (for those under 59 ½), the inevitable leakage for retirement plans isn’t good for participants and for plan providers.

 

Plan participants will lose out because they will invade their retirement savings for money they need today and they will do so after the market has gone down from 25-40% (depending on when they get their distribution).

 

The 401(k) industry is going to get hurt by this because it’s a business dependent on plan asset size and leakage through hardship distributions and termination distributions will negatively impact the amount of fees that many providers take.

 

This is the reality we live in. People negatively impacted by this pandemic need relief, but many in the 401(k) industry will pay a price for it with reduced fees because of a market downturn and leakage through distributions. Participants who need the money now, aren’t going to doing better.

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