Due to the economic downturn sparked by the coronavirus pandemic, many employers have suspended 401(k) match contributions for their employees. Cutting out company matches can have enormous repercussions to diligent savers who counted on this employment perk to help build their financial futures. Here we discuss how the COVID-19 crisis has affected 401(k) matches so far, how it will likely affect businesses great and small in the coming months, and what you can do if your employer suspends its match.
Very Small Businesses Suspend Employer 401(k) Matches
Plans with 25 or fewer 401(k) plan participants stopped matching contributions at 5x the rate of companies with 100+ participants between January and May, according to the latest reports. Drawing on data from over 116,500 retirement plans, researchers found employer contributions decreased overall by 11.4% from March through May. The move was driven by business interruptions and closures. Industries like health care, social assistance, accommodation, food service, and retail were particularly affected.
SMB 401(k) Providers Stay the Course
As of June 2020, nearly 90 percent of plan sponsors said they made no change to employer contributions, according to a Plan Sponsor Council of America survey. Only 5% of plan sponsors suspended their match, 1% reduced them, and another 2.9% were actively considering some type of change.
PSCA Research Director Hattie Greenan explained, “Employers, doubtless helped by support from the Payroll Protection Program, are responding to current conditions by largely staying the course.”
Corporations with Over 5,000 Employees More Likely to Slash Retirement Matches
On the other hand, large firms employing more than 5,000 workers were more likely to pause 401(k) matching, with 11.6% doing so. Amtrak, Best Buy, La-Z-Boy, Sabre Corp, Marriott Vacations, Choice Hotels, Lands’ End, Tenet Health, Quest Diagnostics, Macy’s, and Norwegian Cruise Lines have all pulled back on matching contributions in the wake of the coronavirus pandemic.
The Fallout May Continue
Willis Towers Watson surveyed 543 companies in June and found that 15 percent had suspended or reduced their match. Another 10 percent said they are considering action. Further, 7 percent suspended nonelective contributions, and another 7 percent are considering it.
When Will Employer 401(k) Matches Resume?
We’ve seen employer matches fall by the wayside in the past. The 2008 financial crisis also prompted companies to scale back on their employee benefits. From 2007 to 2009, about 10% of 401(k) plan sponsors stopped making matching contributions, and another 10% ceased elective profit-sharing or nonmatching employer contributions. Five years after the matches dried up, the Chicago Tribune reported the contributions were “making a comeback.”
Thirty-four percent of employers who cut benefits during the current crisis said they had “no set date” for reinstating benefits, but may “at some point.” Eleven percent weren’t sure what the future would hold. Another four percent indicated the change could be permanent.
Other employers had a more concrete timetable in mind – 16 percent planned to reinstate matching “sometime this year,” 32 percent cited “the first or second quarter of 2021,” and 3 percent cited “the second half of next year.”
Specifically, Hewlett-Packard announced a temporarily suspended match from July 1 through December 31, 2020. Allegheny Technologies suspended their company contributions from June 1 through “no later than December 31, 2021.”
On a positive note, Ascensus found that 7.5 percent of the businesses that cut 401(k) matches in March had reinstated them by May.
What to Do If Your Employer Match is Suspended or Cut
If you can afford it, ramp up your own contributions temporarily to compensate for the missing matched funds. Financial advisors recommend most people setting aside 12 to 15 percent of their gross income for retirement each year, so you’ll want to bridge the gap if you can. If you’ve gotten off to a late start, you should invest 18 to 20 percent. You can justify the expense, as you won’t be vacationing, eating out, or spending as much during the pandemic. Remember, what you put in this year will reduce your tax burden.
If finances are really rough this year, let yourself off the hook and pledge to ramp up as soon as you can. Ask your 401(k) plan provider about options like taking out early distributions or borrowing from your 401(k) if you’ve exhausted other options.
