Companies hammered by coronavirus pandemic look to drop 401(k) matches
Amtrak, Macy's and La-Z-Boy are among the companies to suspend or reduce 401(k) contributions
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A growing number of companies are reducing, or eliminating, the contributions they make to their employees’ 401(k) plans, trying to cut costs as the coronavirus pandemic wallops their profits and revenues.
Marriott International, La-Z-Boy, Amtrak and Haverty Furniture Company have all announced plans to suspend or reduce matching contributions to employees’ 401(k)s.
Macy’s, which furloughed the majority of its workers this week, is also delaying its 401(k) match to later this year, a spokesperson told FOX Business.
Depending on the employer’s 401(k) plan, contributions to the retirement savings account could be matched up to a certain point of their salary by the employer. A majority, about 95 percent, of employers offer either a company match or a different type of contribution, according to data published by Vanguard. The average amount that employers give is 4.3 percent of an employee’s salary.
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Companies are not legally required to match any part of an employee’s 401(k) plan and they have some flexibility around their ability to suspend or reduce their contributions although many are required to notify employees of the change first.
About 42 percent of the 137 million workers in the United States have participated in a retirement plan that includes a 401(k), 403(b), 457 or other individual account plans, according to the Pension Rights Center, based on data provided by the Bureau of Labor Statistics. An estimated 22 percent of employees participate in a pension plan.
After the 2008 financial crisis, almost 20 percent of U.S. companies with at least 1,000 employees surveyed by Willis Towers Watson, a consulting and risk management firm, froze their 401(k) matching contributions. Companies that suspended their matches during the Great Recession did so for a median of 12 months.
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Between the start of 2020 and March 15, Fidelity Investments reported that 4 percent of its 401(k) account holders decreased contributions, and 2 percent stopped contributing. About 7 percent increased their savings rate during the period.
Despite the economic uncertainty and recent stock-market volatility, experts have cautioned Americans to continue contributing to their retirement accounts.
Even with the $2 trillion stimulus package signed into law by President Trump last week, which waived the 10-percent early withdrawal penalty for Americans who take out up to $100,000 from qualified retirement accounts for coronavirus-related purposes, Jeff Schneble, CEO of Human Interest, urged Americans to not take advantage of the early withdrawal program.
“The actual cost of withdrawing capital now is much higher than people may realize," he said. "Ten thousand dollars withdrawn now is actually more than $40,000 over time, assuming a 5 percent average return over 30 years. The actual cost is likely even higher than this, given that the market is at a low and will likely rebound significantly in the next 12 to 18 months.”