Good news—most employers are current with their retirement plan matches and contributions.
New research from the Plan Sponsor Council of America (PSCA) finds that, during a period of unprecedented economic turmoil, most employers are continuing to contribute to their retirement plans while making adjustments to help participants access savings if needed
“Despite the headlines, the vast majority of employers have not moved to suspend their contributions,” PSCA Research Director Hattie Greenan said in a statement. “Employers, doubtless helped by support from the Payroll Protection Program, are responding to current conditions by largely staying the course, implementing plan provisions to make it easier for impacted participants to access their retirement savings if needed, but also providing education on the long-term effects of taking distributions and loans.”
Employer contributions
None of the organizations that responded indicated that they are currently considering terminating the plan because of the ongoing pandemic and economic conditions and more than 90% of respondents are making no changes to employer contributions at this time. Additionally:
- Five percent of respondents have suspended matching contributions and fewer than 1% have suspended non-matching (profit-sharing) contributions. Larger organizations are somewhat more likely to have suspended the match.
- Three percent of organizations are considering reducing or suspending contributions but have not made a decision at this time.
CARES Act adoptions
Almost three months after the passage of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, most plan sponsors have implemented at least one of the optional expanded loan or withdrawal provisions designed to help relieve the economic impact felt by participants as a result of the COVID-19 pandemic.
- Nearly two-thirds (63.5%) of respondent plans are allowing participants to take Coronavirus-Related Distributions (CRDs).
- Only a third (36.5%) of respondents increased plan loan amounts to the lesser of $100,000 or 100% of the vested account (vs. previous limits of $50,000 or 50% of the vested account).
- One-in-five plan sponsors (19.7%) are still taking a wait-and-see approach, and fewer than 10% of employers have already determined they will not implement any of the optional CARES Act provisions.
Participant response
While the majority of plans have adopted the expanded access provisions of the CARES Act, few participants have taken advantage as of early June.
- Among plans offering a CRD, nearly 40% say an average of just 1-5% of participants have taken one, though nearly as many say that fewer than 1% of participants have done so, and 18.4% report that no participants have.
- Among plans that have increased the loan limits, most report that fewer than 1% of participants have taken advantage of this option, and more than a quarter state that none have.
- Nearly 70% of organizations stated that plan loan activity throughout the last few months is about the same as usual (whether they implemented CARES Act loan provisions or not), with only 13.4% noting an increase, and 10.9% actually noting a decrease.
“Employers want participants to have access to their accounts if absolutely necessary—they understand that the current crisis might take precedence over saving for retirement,” Nevin Adams, Chief Content Officer of the American Retirement Association, added. “But they are also concerned about the long-term financial security of their employees and their ability to retire so while they are providing access, they are also providing education on the impact of the various options.”
In fact, half of respondents are currently communicating the impact of plan loans and distributions on retirement savings to participants—a third (32.4%) already have and 17.6% are currently creating the communications.
“Though the full economic impact of the COVID-19 pandemic is still not yet known, and funds from the Payroll Protection Program continue to flow, organizations and participants seem largely to be staying the course when it comes to retirement savings,” Adams concluded.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
