Stocks are on sale. The consensus from 401k advisors is that participants stay the course and let the dual money miracles of dollar-cost averaging and compounding interest do the heavy lifting in the recovery that’s sure to come.
For plan sponsors, however, it’s a different story. The Department of Labor reported Thursday that over 6.6 million people filed for unemployment for the week ending March 28, up 3.3 million from the week before, and by far the largest number of initial unemployment claims in history.
For companies yet to reduce staff, Willis Towers Watson finds that over four in 10 companies (42%) have frozen or reduced hiring. Another 28% will or might do the same. About one in five (18%) has eliminated or reduced the hiring of seasonal workers, with more than a third (35%) planning or considering doing so.
An economy in dire straits would naturally cause companies to look to cost-cutting measures, and retirement benefits are on the block, with the 401k match likely the first to go.
The Wall Street Journal lists Amtrak, La-Z-Boy Inc., retailer Mattress Firm Inc., and travel tech company Sabre Corp. among the first in what the paper calls a “wave of businesses suspending or reducing matching contributions to employees’ 401ks.”
Noting the spillover effect it can have as workers reduce or suspend their own contributions, the Journal added that hotel giant Marriot International, with 174,000 employees, announced it will delay matching contributions “it was scheduled to deposit in participants’ accounts on March 10 until September. Macy’s Inc. is also delaying its 401(k) match to later this year.”
The ERISA effect
“If a 401k plan has required contributions such as a safe harbor, stated matching contribution or if another retirement plan with minimum funding requirements (defined benefit, cash balance, target benefit, money purchase), now is the time to consider whether or not you can afford these contributions,” Ary Rosenbaum, ERISA/retirement plan attorney for his firm, The Rosenbaum Law Firm P.C., advises.
“Thanks to accrual requirements with many of these contributions, a plan sponsor who realizes they can’t afford a contribution in December isn’t going to help them avoid that mandated contribution,” Rosenbaum adds. “You have a lot more leeway in perhaps freezing or eliminating these types of contributions if you figure it out before June 1.”
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.
