Companies start suspending 401(k) contributions due to economic slowdown

Companies have begun suspending planned matching contributions to their defined contribution plans as a result of the COVID-19 pandemic, filings show, with more expected to follow suit in the coming weeks.

La-Z-Boy Inc., Monroe, Mich.; Bassett Furniture Industries, Bassett, Va.; flooring company Interface Inc., Atlanta; and technology company Sabre Corp., Southlake, Texas, have each announced suspensions of employer contributions to DC plans in recent days.

"We are prepared to do what it takes to weather the crisis and to successfully emerge with our Bassett teammates on the other side of this difficult period of time," said Rob Spilman, chairman and CEO of Bassett, in the company's 8-K filing Thursday with the Securities and Exchange Commission.

The moves aren't surprising, industry experts said.

"The idea is that because it's pretty clear there's going to be a rocky road ahead, employers and plan sponsors are trying to cut off any spending that they absolutely don't have to make right now and see where things develop and then revisit as the path forward starts to clear," said Joy M. Napier-Joyce, an employee benefits attorney at Jackson Lewis PC.

In response to the 2008 financial crisis, 13% of companies with at least 1,000 employees suspended 401(k) contributions and another 5% reduced contributions, according to a 2010 survey from Willis Towers Watson.

Because many plan sponsors faced similar decisions in 2008 and 2009, there's less reluctance in 2020 to suspend contributions in the midst of a financial crisis, Ms. Napier-Joyce said.

Sponsors "find that the fiscally prudent thing to do is suspend contributions until the future is a little bit more clear and repurpose those dollars to help solve other cash-flow issues," she said.

Robyn Credico, North America defined contribution practice leader at Willis Towers Watson, said plan sponsors have started asking questions in recent weeks about the filing procedures for suspending or reducing 401(k) contributions and expects to see more companies go down that path shortly.

Ms. Napier-Joyce said many companies are making plans to suspend benefits more quickly now than in 2008. "There's just much more writing on the wall for a lot of employers that this isn't going to be a quick turnaround," she said.

In the aftermath of the 2008 financial crisis, about 83% of the suspensions and reductions occurred during the first half of 2009, with roughly 46% of the changes taking place in either January or April, according to Willis Towers Watson.

On a positive note, 75% of sponsors that suspended or reduced benefits during the last financial crisis reinstated their contributions shortly thereafter, the Willis Towers Watson survey, which was published in October 2011, found. Ms. Credico said she expects the suspensions issued this year to be "temporary."

At the moment, employers are facing myriad tough decisions and are looking at their options holistically, Ms. Napier-Joyce said. "Employers are struggling to make sure that they can keep their businesses going and no one relishes the stopping of employer contributions," she said. "They're hard decisions, but I think they're viewed as one way to avoid or delay perhaps more difficult employment decisions."

Rob Kozlowski contributed to this story.