COVID-19

Some companies are cutting retirement contributions in the COVID-19 cash crunch

Meghan McCarty Carino Apr 1, 2020
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You probably don't want to check your 401(k) just now, or you might look like this trader did on March 9. Timothy A. Clary/AFP via Getty Images
COVID-19

Some companies are cutting retirement contributions in the COVID-19 cash crunch

Meghan McCarty Carino Apr 1, 2020
You probably don't want to check your 401(k) just now, or you might look like this trader did on March 9. Timothy A. Clary/AFP via Getty Images
HTML EMBED:
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Some standard advice in this topsy turvy market: Don’t check your 401(k). Suffice it to say the crisis, and the stock market volatility it’s caused, have damaged the retirement accounts of many Americans — at least in the short term.

But now, some companies hit hard by the economic slowdown will stop matching contributions to 401(k) plans. Marriott has delayed its contributions until September and Amtrak has suspended them indefinitely.

First, access to any employer-sponsored retirement plan is a luxury not available to about half of private sector workers in America. But for those who do have a 401(k), most employers match a portion of what workers put away.

The benefit was on the rise amid the tight labor market before the crisis, according to Brian Graff, CEO of the American Retirement Association.

“You’re triaging your cash flow,” Graff said. “Understandably, paying people and trying to avoid furloughs and paying for health care comes before retirement savings.”

During the Great Recession, about 20% of companies pulled back contributions to retirement plans, and Graff expects this time could be even worse.

“The breadth of this is enormous, and it’s impacting everybody,” he said.

Employers cutting costs on 401(k)s a decade ago is part of the reason Americans are less prepared for retirement today, said Teresa Ghilarducci, who heads the Retirement Equity Lab at the New School for Social Research.

“We were way behind what people needed before this recession, and they’re going to be further behind after this recession,” Ghilarducci said.

She’s also found workers pick up on signals from their bosses. When companies hold back on matching retirement money, employees often decide to cut what they put in, too. That means they don’t benefit as much when markets eventually recover.

“The crisis is just a reminder that 401(k)s shift all the risk and responsibility for retirement planning onto workers themselves,” said Jacob Hacker, a political science professor at Yale University.

A Willis Towers Watson survey of large companies after the financial crisis found most started giving to 401(k)s again within a few years at roughly the same levels as before. 

COVID-19 Economy FAQs

Millions of Americans are unemployed, but businesses say they are having trouble hiring. Why?

This economic crisis is unusual compared to traditional recessions, according to Daniel Zhao, senior economist with Glassdoor. “Many workers are still sitting out of the labor force because of health concerns or child care needs, and that makes it tough to find workers regardless of what you’re doing with wages or benefits,” Zhao said. “An extra dollar an hour isn’t going to make a cashier with preexisting conditions feel that it’s safe to return to work.” This can be seen in the restaurant industry: Some workers have quit or are reluctant to apply because of COVID-19 concerns, low pay, meager benefits and the stress that comes with a fast-paced, demanding job. Restaurants have been willing to offer signing bonuses and temporary wage increases. One McDonald’s is even paying people $50 just to interview.

Could waiving patents increase the global supply of COVID-19 vaccines?

India and South Africa have introduced a proposal to temporarily suspend patents on COVID-19 vaccines. Backers of the plan say it would increase the supply of vaccines around the world by allowing more countries to produce them. Skeptics say it’s not that simple. There’s now enough supply in the U.S that any adult who wants a shot should be able to get one soon. That reality is years away for most other countries. More than 100 countries have backed the proposal to temporarily waive COVID-19 vaccine patents. The U.S isn’t one of them, but the White House has said it’s considering the idea.

Can businesses deny you entry if you don’t have a vaccine passport?

As more Americans get vaccinated against COVID-19 and the economy continues reopening, some businesses are requiring proof of vaccination to enter their premises. The concept of a vaccine passport has raised ethical questions about data privacy and potential discrimination against the unvaccinated. However, legal experts say businesses have the right to deny entrance to those who can’t show proof.

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