COVID-19

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

Meghan McCarty Carino Apr 1, 2020
HTML EMBED:
COPY
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:
COPY

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

With a slow vaccine rollout so far, how has the government changed its approach?

On Tuesday, Jan. 12, Health and Human Services Secretary Alex Azar announced changes to how the federal government is distributing vaccine doses. The CDC has expanded coronavirus vaccine eligibility to everyone 65 and older, along with people with conditions that might raise their risks of complications from COVID-19. The new approach also looks to reward those states that are the most efficient by giving them more doses, but critics say that won’t address underlying problems some states are having with vaccine rollout.

What kind of help can small businesses get right now?

A new round of Paycheck Protection Program loans recently became available for pandemic-ravaged businesses. These loans don’t have to be paid back if rules are met. Right now, loans are open for first-time applicants. And the application has to go through community banking organizations — no big banks, for now, at least. This rollout is designed to help business owners who couldn’t get a PPP loan before.

What does the hiring situation in the U.S. look like as we enter the new year?

New data on job openings and postings provide a glimpse of what to expect in the job market in the coming weeks and months. This time of year typically sees a spike in hiring and job-search activity, says Jill Chapman with Insperity, a recruiting services firm. But that kind of optimistic planning for the future isn’t really the vibe these days. Job postings have been lagging on the job search site Indeed. Listings were down about 11% in December compared to a year earlier.

Read More

Collapse

As a nonprofit news organization, our future depends on listeners like you who believe in the power of public service journalism.

Your investment in Marketplace helps us remain paywall-free and ensures everyone has access to trustworthy, unbiased news and information, regardless of their ability to pay.

Donate today — in any amount — to become a Marketplace Investor. Now more than ever, your commitment makes a difference.