COVID’s Year-End Toll on 401(k)s for Small Businesses
Author: Siân Killingsworth / 26 Mar 2021 / Business

COVID has taken its toll on 401(k) retirement plans, with about 8% of businesses (covering approximately more than 46,000 plans) having cut 401(k) contributions since the start of the pandemic.
While small businesses are more likely to have reduced matching or discretionary contributions as a cost-saving measure, the great majority of companies were able to maintain their retirement contributions in 2020.
Contribution Changes
According to the Plan Sponsor Council of America, more than 1 in 10 small business 401(k)s with fewer than 50 participants have made COVID-19 related changes to their matching contributions within the past year. Organizations with over 5,000 participants were 3x more likely to stay the course.
- Almost 4 percent of 401(k) plans stopped paying a match to workers entirely.
- 1.5 percent reduced their match.
- 1 percent eliminated non-matching contributions.
- 1.5 percent reduced non-matching contributions.
Though many small business employers have suspended or reduced their contributions this year, more than 90% are still contributing – which is in stark contrast to what happened during the 2008 financial crisis. A September survey by Willis Towers Watson found that most employers that suspended or reduced contributions this year plan to reinstate them by 2021.
Suspending the employer match greatly decreases plan participation and deferral rates, so it’s good that employers are taking advantage of government assistance like the Payroll Protection Program, rather than altering their 401(k)s.
Legislation Amending Loan Rules
Plans are not obligated to incorporate aspects of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, but more than half of small business plans are allowing participants to take advantage of relief by:
- Permitting workers under 59.5 to withdraw funds as (taxable) income, without the 10% penalty.
- Allowing increased 401(k) plan loan amounts (up to 100% of the balance, rather than the usual 50%).*
- Pausing repayment of existing loans that were due through December 1, 2020.
- Letting workers defer loan payments for up to one year, and, if taken for a COVID-19 hardship, allowed to repay gradually over three years.
Initially, there was not much of an increase in plan loans or withdrawals for small businesses early in 2020, but a quarter of small business 401(k) sponsors reported use of the loan feature as 2021 inched nearer. Nearly 40 of plans noted an increase in withdrawals.
*Ubiquity did not allow for this plan provision
Ubiquity Helps Small Businesses Weather the COVID-19 Crisis
Ubiquity is one of America’s leading administrators of 401(k) plans for small businesses, offering affordable flat-fee plans geared specifically toward small enterprises with fewer than 50 employees, independent contractors, and self-employed workers. We are here to answer questions, provide strategic advice, and help you make the most of small business retirement plans. Easy online setup and management allows you to get started saving for retirement without delay or make changes to your plan as needed.