Employers Are Beginning To Match 401K Contributions Again
In the heart of the economic downturn as a result of the worldwide pandemic companies began to cut the contributions they made to employees’ 401(k) retirement plans. Recently we are seeing that trend reversing.
Companies aren’t required to make 401(k) contributions, but most do, according to Vanguard. The most common approach among companies that use Vanguard’s 401(k) services is to match 50% of the amount workers put in, up to 6% of pay.
In 401(k) plans administered by the record-keeper Alight Solutions, the average account contribution was $10,092 in 2019. Employers put in 35% of that total, or $3,587. Because “a 35% reduction in contributions may be hard for employees to make up,” some may have to work longer, said Rob Austin, director of research at Alight.
One company, Quest Diagnostics Inc., suspended the matching contributions it made to its $4.59 billion 401(k) plan in April. But when patients returned it restarted those contributions on Aug. 23 (four months before planned).
“We reinstated to normalcy,” Chief Financial Officer Mark Guinan said on a recent call with Wall Street analysts.
T. Rowe Price reported 9% of the retirement plans it administers (assets above $25 million) were suspended or reduced their 401(k) matching contributions between mid-March and Oct. 31. 1/3 have reinstated them). Ascensus reported 21% of the employers that use its 401(k) administration services suspended their 401(k) contributions between March 1 and Sept. 30 (2/3 have since restarted).
Generally, “they are going back to what they had before,” said Pam Sandelin, vice president of insights and analytics at Ascensus. Employers “are trying to help employees navigate the uncertainty of Covid” and keep their retirement savings on track, she said.
Its positive that less companies have reduced or suspended their matching contributions than during the 2008-2009 crisis. According to Vanguard Group, during the last recession, 12% of companies that used Vanguard’s 401(k) services provided no employer contribution in 2010, up from 6% in 2008. This year 7% of Vanguard’s clients have announced plans to suspend their company matches. At the end of 2019, 4% offered no employer contribution.
“Employers with 401(k) plans really aren’t under so much pressure that they have needed to reduce or eliminate the match this time around,” said Alicia Munnell an economist and director of Boston College’s Center for Retirement Research.
Robyn Credico, at Willis Towers Watson said government-stimulus money, including the PPP for businesses, helped most companies ride out the storm without touching their 401(k) plans.
Some companies have plans begin matching programs in the new year.
Hewlett Packard Enterprise Co. suspended its 401(k) match (16,500 savers in its $8.5 billion plan) from July 1 to Dec. 31. On Jan. 1, the company plans to reinstate its 401(k) match at the prior level of 100% of the amount workers put into their accounts, up to 4% of pay.
“We are restoring the match because we made a commitment to our team members, who have gone above and beyond to help our business thrive in spite of the unprecedented challenges presented by the pandemic,” a spokesman said in an email. “We firmly believe in the importance of this benefit to team member well-being.”