When the price of oil drops for prolonged periods of time, the trickle-down affect can reach all the way to 401k matching contributions of impacted oil companies.
The latest example of this comes from Houston-based CITGO Petroleum Corporation, which announced in its third-quarter report on Nov. 13 that it has suspended employer contributions to the company’s 401k retirement plan, effective as of Nov. 1, 2020.
This move comes on the heels of much larger Exxon Mobil suspending the employer match to its 401k plan in early October as part of a broader effort to reduce costs given the challenging business environment.
CITGO’s third quarter results, the company said in a statement, were driven by the economic effects of the COVID-19 pandemic, which affected the refining industry as a whole, and were further affected by an eight-week shutdown at its Lake Charles, La. refinery due to Hurricanes Laura and Delta. As a result of these factors, CITGO reported a net loss of $248 million for the third quarter of 2020.
The company said it “continues to take aggressive steps to manage costs in order to navigate the challenging environment, including temporarily suspending employer contributions to the company’s 401k retirement plan and a 10% reduction in salaries,” adding that “lower earners” are exempt from the cutbacks.
“The ongoing impact of COVID-19 and a category four hurricane made the third quarter particularly difficult,” said CITGO President and CEO Carlos Jordá. “We were able to quickly adjust our operations throughout our system while Lake Charles was offline, and at the same time continued to adjust cash spending and aggressively manage expenses to cope with the negative conditions affecting the U.S. refining sector.”
The company said the new compensation and benefit cuts will be reviewed as improving industry conditions warrant. In addition, in September 2020, CITGO modified the salaried employees defined benefit plan. That will result in an approximately $150 million reduction in future benefit obligations as of the quarter end.
According to Reuters, CITGO stopped an automatic 3% contribution to employee 401k plans and a 6% match to employee contributions on Nov. 1.
As of Jan. 1, 2021, salaries of $100,000 or greater will be reduced by 10% and salaries between $50,000 and $100,000 will be cut on a sliding scale starting at 1% and continuing up to 10%. Hourly employees will not be affected. Reuters also reported that CITGO said no bonuses would be paid.
CITGO’s 401k plan has an automatic enrollment feature, where new or rehires are automatically enrolled in the Plan 45 days from their eligibility date at a contribution rate of 3% of pre-tax basic eligible earnings, and contributions are defaulted to a Target Date/Life Cycle Fund based on date of birth assuming a retirement age of 65.
The plan has a BrightScope Rating of 88, placing it in the top 15% of all plans in its peer group. This plan is also in the top 15% of plans for Account Balances, Company Generosity, Salary Deferral, and Total Plan Cost. CITGO Petroleum Corporation Employees’ Retirement and Savings Plan currently has over 3,200 active participants and over $779.6M in plan assets.
SEE ALSO: