Most 401(k) Plans Weathered 2020 Without Reducing Employer Contributions

Plans that cut or stopped matching contributions are restoring them

Stephen Miller, CEBS By Stephen Miller, CEBS December 17, 2020

In contrast to the response during the 2008-09 financial crisis, more than 90 percent of employers will make their retirement plan contributions this year, though smaller organizations are more likely to have suspended or reduced employer-matching contributions in the wake of the COVID-19 pandemic.

So shows a November survey of 139 employers that sponsor a 401(k) plan for employees, conducted by the Plan Sponsor Council of America (PSCA), a trade organization that is part of the American Retirement Association.

Although the overall share of organizations that reduced 401(k) plan contributions was relatively small—around 8 percent—that still represented nearly 46,000 plans throughout the U.S.

"Most responding companies still seem optimistic that the financial impact of the COVID-19 pandemic will be short-lived—though it bears noting that the economic impact varies widely by industry and by region," PSCA reported.

COVID-19 Versus the Great Recession

"We often are asked how companies are responding to current economic conditions as compared to the financial crisis of 2008-09," said Hattie Greenan, research director for PSCA. "The short answer is that, over a somewhat longer time horizon, four times as many employers suspended or reduced the match [during the Great Recession] compared to now. Where their retirement plans are concerned, employers' responses to current conditions seem more measured than in 2008-09. We may be seeing the impact of lessons learned."

In 2008, she noted, companies that suspended their matching contributions experienced a decrease in plan participation to a much greater degree (72.9 percent of companies) than those that did not change their matching contribution (14.4 percent of companies), as well as a decrease in participant deferral rates.

Added Nevin Adams, chief content officer and head of research for the American Retirement Association, "I think many went into this period expecting it wouldn't last all that long, likely muting the potential impact on retirement savings. Since then, there have been other mitigating factors, such as the broad-based government assistance in the form of the Payroll Protection Program, and that has almost certainly helped as well."

Pandemic Hits Small Businesses Hardest

Although most companies stayed the course with matching or discretionary plan contributions, smaller organizations were more likely to have suspended or reduced employer contributions, PSCA found.

More than 1 in 10 plans (11.5 percent) with fewer than 50 participants reduced or suspended their matching contribution—three times the number of organizations with 5,000 or more participants that did so.

"Despite the economic strains of the COVID-19 pandemic, most organizations still remain committed to providing retirement plans and plan contributions for employees," PSCA reported.

Reinstating Matching Contributions

A September survey by consultancy Willis Towers Watson found that most employers that suspended or reduced employer contributions this year expect to reinstate them by 2021, with 60 percent reinstating the contributions at the same level as prior to their suspension or reduction.

The survey received responses from 464 U.S. employers that sponsor at least one 401(k)-type defined contribution (DC) retirement plan.

"Providing employees with a financially secure retirement goes beyond enrolling them in a DC plan," said Alexa Nerdrum, managing director for retirement services at Willis Towers Watson. "Employers recognize the financial stress their employees are facing and understand the support a robust DC plan can bring during employees' working years and in retirement."

Two press releases from Pittsburgh-based industrial manufacturer Arconic Corp. show how the pandemic-related economic downturn last spring and subsequent recovery have affected its 401(k) contributions. In April, the firm announced pay cuts and suspended matching contributions for salaried employees in its 401(k) plan, which has more than 7,700 active participants. In November, CEO Tim Myers commented, "The steps we took to strengthen our financial position combined with the strong recovery of automotive demand and our employees' hard work enabled us to end the temporary salary reductions and reinstate the 401(k) match for all impacted employees."

COVID-19-Related Plan Distributions

PSCA found that most responding organizations implemented at least one of the optional provisions of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, designed to help relieve the economic impact felt by participants as a result of the COVID-19 pandemic. Among those changes:

  • More than half of the responding plans allowed coronavirus-related distributions, and nearly one-third are allowing increased plan loan amounts.
  • Half of plans allowed participants to pause the paydown of existing loans that were due through Dec. 1, 2020, and defer payments for up to a year, though this was significantly more common at large companies (73.3 percent of plans) versus smaller ones (23.1 percent).

As of November, one-quarter of plan sponsors indicated an increase in plan loans, up from 13 percent that reported an uptick in June, while nearly 40 percent of plans noted an increase in permanent withdrawals, as the economic impact of the pandemic continues and expanded unemployment benefits lapse.

Still, most plan sponsors have not reported an increase in plan loans or withdrawals this year. "Ironically, [participants] knowing that they could access those retirement funds in an emergency may well have tempered actual withdrawals to date, though we're not out of those woods just yet," Adams noted . "Quick congressional action in the form of the CARES Act clearly played an important role in helping provide reassurance during a critical period." 

Related SHRM Articles:

Number of 401(k) Funds Offered to Plan Participants Shrinks, SHRM Online, December 2020

IRS Issues Further Guidance on 401(k) Withdrawals, While Participants Hold Steady, SHRM Online, July 2020

Help Panicking 401(k) Participants Stay the Course, SHRM Online, March 2020

When Employers Must Cut Their 401(k) Contributions to Stay AfloatSHRM Online, March 2020



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