The vast majority of employers are still contributing to their workers’ 401(k)s, despite the economic fragility of many firms due to the coronavirus.
Roughly 11% of employers suspended their company match in the second quarter, according to the latest retirement savings trend report from Fidelity Investments.
Retirement matches are often vulnerable during economic downturns. During the Great Recession in 2008, nearly a quarter of employers halted or decreased 401(k) contributions. The coronavirus pandemic, and subsequent market volatility, is no exception. Fidelity’s data is the latest to find that employers are, in fact, suspending contributions–but at a lower rate than some predicted.
There’s more good news, Fidelity attests: Of the employers that suspended their company match, 32% indicated they plan to reinstate their match in the next year, and 48% plan to reinstate as soon as financially possible. Just 6% of employers indicated they have no plans to reinstate their match.
“The company match can help drive participation in a workplace savings plan while providing employees with a savings goal to aim for, so we are encouraged to see that the majority of our clients continued to provide this important retirement savings benefit,” says Kevin Barry, president of workplace investing at Fidelity Investments.
Fidelity’s report also found that many retirement plan investors are still committed to saving and haven’t been scared off by the volatility in the stock market: Most workers (88%) contributed to their 401(k) in the second quarter, dropping only slightly from last quarter’s record high of 89%, Fidelity reported. Just under 1% of 401(k) investors stopped their retirement contributions, and 9% increased their contribution rate.
Industry experts suggest employers continue to encourage employees to contribute to their 401(k) accounts, despite volatility.
For employers that are suspending or reducing matches, there are some best practices for communicating the information to employees, according to industry experts. Among those: Be honest and open about the changes employers are making to contributions; explain why you are doing so and give workers an idea of how long those changes may last; tell employees if you expect the change to be temporary; and explain other rewards employees still have available.
“If you don’t know how long this will last, say so. And tell employees what your considerations are, if you know them,” John Lowell, an Atlanta-based partner with October Three Consulting, recently told HRE. “If you have no idea what you will be doing, say so. But build a case as to why it is in that employee’s interest to stay with the company.”