With mass layoffs, furloughs and dramatic drops in business revenue infecting sectors across many industries as the U.S. battles the COVID-19 pandemic, it’s not particularly surprising that companies are looking at suspending their 401k matching contributions—or even terminating plans altogether as they struggle to stay in business.
Scary stuff to be sure as we deal with unpleasant realities today that look much more menacing than the 2008 financial crisis, which saw many plans eliminate matching contributions.
“The longer the crisis goes on and the country is basically shut down, the more companies will need to find sources of cash to keep their businesses afloat and employees on board,” Peg Knox, COO of the Defined Contribution Institutional Investment Association, told 401k Specialist on the final day of March.
“Company contributions can be a source of cash but will likely require plan document changes in order to cease or delay these contributions going forward. I would hope that it would be a small percentage of companies taking this step—and it’s likely that smaller ones will take this step first,” Knox continued. “However, we are living in unprecedented times, so no one knows for sure to what extent firms will do this.”
Reports have already started to come out about companies suspending matching 401k contributions. Travel booking firm Sabre suspended matching contributions in mid-March, and last week Marriott did the same after closing its resorts and furloughing employees during the crisis.
The Daily Beast reports that Brooklyn, N.Y.-based Vice Media on March 30 told employees that the youth and young adult-focused digital media company will no longer match staff 401k contributions, along with other more severe measures (including pay cuts) intended to help the company weather the storm.
Now there’s a question of whether plan changes like this will soon be allowed to take effect immediately or whether they’ll still have to give the currently required 30-day notice.
The American Retirement Association has asked the U.S. Treasury to amend current regulations in an effort to allow companies to suspend 401k matching immediately, along with other requests intended to help plan sponsors, third-party administrators, recordkeepers, and other organizations struggling with the national impact of the pandemic.
Among the other relief requests in ARA’s letter to the Treasury are recommendations that would help companies avoid partial termination of plans and mitigate the greatly increased risk of plan participant loan defaults.
Knox said plan sponsors should be looking at adding loan capabilities, removing wait periods for loans, streamlining hardship withdrawals, and making sure they offer in-service withdrawals.
“In the long term, they may want to consider adding an advice provider to the plan, if they do not have it today. This is particularly helpful to those near retirement,” Knox said.
To help 401k plan participants deal with the ever-unfolding crisis, Knox offered a few recommendations.
“On the investment side, plan sponsors’ messages to participants may include: stay calm, reach out to the plan provider or advisor, be a long-term investor, and stay diversified,” Knox said. “For participants in target-date funds and managed accounts, plan sponsors could note that these accounts are managed by investment professionals. Plan sponsors may also want to remind participants about related resources that are available to them, such as an Employee Assistance Program.
On a DCIIA Communications Task Force call earlier this week, members discussed ways they are communicating internally and with clients during the pandemic. Some of those tips and additional resources can be found here.
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
