Some companies are cutting retirement contributions in the COVID-19 cash crunch
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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
When does the expanded COVID-19 unemployment insurance run out?
The CARES Act, passed by Congress and signed by President Donald Trump in March, authorized extra unemployment payments, increasing the amount of money, and broadening who qualifies. The increased unemployment benefits have an expiration date — an extra $600 per week the act authorized ends on July 31.
Which states are reopening?
Many states have started to relax the restrictions put in place in order to slow the spread of COVID-19. Although social-distancing measures still hold virtually everywhere in the country, more than half of states have started to phase out stay-at-home orders and phase in business reopenings. Others, like New York, are on slower timelines.
Is it worth applying for a job right now?
It never hurts to look, but as unemployment reaches levels last seen during the Great Depression and most available jobs are in places that carry risks like the supermarket or warehouses, it isn’t a bad idea to sit tight either, if you can.
You can find answers to more questions here.
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